Avoid Making This Mistake with an Inherited IRA
By Douglas Goldstein, CFP®
If you are the beneficiary of an inherited IRA, avoid immediately withdrawing the money. If you make an immediate withdrawal, you might forfeit the tax-deferred status of the account and be subject to paying taxes. A proper withdrawal strategy for an inherited IRA can minimize your tax bill.
What you need to know when you inherit an IRA
In an effort to encourage savings, America lets the assets inside an IRA account grow tax deferred – owners only pay tax once the funds are withdrawn. If you are the beneficiary of an IRA, depending on how you title the account and withdraw the assets, you too can take advantage of tax-deferred growth. Any mistake made in titling, transferring, or withdrawing funds may not only cause you to lose future tax-deferred growth, but also may make you liable to pay current taxes on the funds. To maintain the tax- deferred status, your new account must be coded as a “beneficiary IRA” by the custodian of the account.
The inherited assets in an IRA can be sold, and other securities bought in accordance with the new owner’s wishes. There is no need to maintain the inheritance in the exact positions as you received it.
What you need when planning your estate
If you have an IRA, make sure you list beneficiaries so that one day, the IRA’s assets are not subject to your estate’s probate. Update your paperwork, especially after a divorce, to ensure that the beneficiaries are the people you actually want to receive the funds. Make sure to mention to your beneficiaries that when the time comes, they should check with their financial advisors about how to best handle the inherited account.
Can you move an inherited IRA to Israel?
Can you transfer an inherited IRA to Israel? Unfortunately, once the funds leave America they lose the tax-deferred status of beneficiary accounts. Therefore, it is crucial that you open a “beneficiary” IRA account with a U.S. brokerage company or bank.
If you need help opening or dealing with an inherited IRA or opening a U.S. brokerage account, go to: www.Profile-Financial.com/inheritedIRA.
Douglas Goldstein, CFP®, is the director of Profile Investment Services, Ltd. He is a licensed financial professional both in the U.S. and Israel. Call (02) 624-2788 for a consultation about handling your U.S. investments from Israel. Securities offered through Portfolio Resources Group, Inc., Member FINRA, SIPC, MSRB, FSI. The opinions expressed are those of the author and not those of Portfolio Resources Group, Inc. or its affiliates.