Some of our clients have inherited an IRA from a parent or other family member, and many have more than one IRA. Because of this, there are some things that every doctor should know whether they have inherited one or are naming a beneficiary for their own. We find it important for both groups to know these 6 important specifics for inherited IRAs:

#1: Know the Limitations

An inherited IRA cannot be rolled over into another IRA account and another IRA account cannot be rolledl into an inherited IRA. They must remain separate.
- This also means that an inherited pre-tax IRA cannot be converted into a Roth IRA.
You cannot contribute additional funds to an inherited IRA.
Once money is distributed from an inherited IRA, you cannot undo it or replace the money in the account.

#2: Know the Options

Transferring inherited IRAs from one custodian to another is allowed, as long as the account remains an inherited IRA. This can be helpful in the case:
- You prefer/are more familiar with a certain custodian.
- The original custodian does not have your desired investing options.
- You have an advisor that uses a different custodian that you would like to manage the funds.

#3: Know the Taxes

IRAs are not taxed when the account is changed from the deceased’s name to the beneficiary’s name.
Distributions will likely be taxed at normal income tax rates at your tax level.
- This can mean that you may enter a higher income tax bracket.

#4: Know the Expectations

The rules here get broken down by beneficiary types and date of death of the original account owner
- Eligible Beneficiary Designations
  - These are surviving spouses, minor children until age of majority, disabled individuals, chronically ill individuals, or individuals no more than 10 years younger than the deceased.
  - Any designated beneficiary who inherited before 2020
  - Funds can be removed over their lifetime
  - Annual RMDs required
- Non-Eligible Beneficiary Designations
  - There are all other beneficiaries that are people and a few specific types of trusts (common examples are grandchildren and adult children)
    - Funds must be taken from the account within 10 years for deaths after 2019
    - No annual RMDs
  - Non-Designated Beneficiaries
    - Non-people beneficiaries (estate, charity, non-qualifying trust)
    - RMDs and the 10-year rule are based on the age of the original owner at death
    - We recommend you talk to your tax advisor to make sure all necessary distributions are accounted for

#5: Know the Advantages

There is no early distribution penalty, if you pull this money out before you’re 59 ½ years old.
- Most retirement accounts carry a 10% penalty for taking distributions before you reach 59 ½.
Once the beneficiary has received the account, they are able to name a new beneficiary. This way, if the funds are not used, the account will easily pass on to whomever they choose.

#6: Know an Expert

We know this is a lot of information for our doctors. The good news is we talk to doctors every single day about tax planning, whether it’s for this year, retirement, or their estate.

If you have any questions about inherited IRAs, please feel free to reach out to us or talk to your CPA. We’re very happy to talk about the options available to you and coordinate with your CPA on any of these matters. Remember that here at MD Financial, we have a passion for helping doctors create peace with their financial future.

If you found this helpful, please forward it to colleagues and remember to follow us on social media. We’re always accepting questions/topics for future episodes of our podcast, so write in or call with your suggestions. Finally, you can reach out to us directly for a second opinion on your financial health, by emailing us at Info@mdfinancialadvisors.com.

Listen on Apple Podcast or Google Podcast

1-888-256-6855

Info@MDFinancialAdvisors.com

Katherine Vessenes, JD, CFP®, is the founder and CEO of MD Financial Advisors who serve 500 doctors from Hawaii to Cape Cod. An award-winning Financial Advisor, Attorney, Certified Financial Planner®, author and speaker, she is devoted to bringing ethical advice to physicians and dentists. She can be reached at Katherine@mdfinancialadvisors.com.