The term inherited IRA might be confusing, because it means two things. It s the individual retirement account of a deceased person who named you as the beneficiary. It s also commonly used to refer to a type of IRA you set up in the deceased s name for your benefit as a beneficiary. This is more properly called a beneficiary IRA. Unless you are the spouse of the deceased IRA owner, you can t make gifts from either type of inherited IRA to a charity without first withdrawing the money.
Spouse as Beneficiary
A spouse who inherits an IRA can assume its ownership or roll it over into her own IRA. In either case, she doesn’t have to take required minimum distributions until she reaches age 70 1/2. At that age, she can also begin making qualified charitable distributions. A beneficiary doesn’t pay income tax on the traditional IRA she inherits until she withdraws money. A qualified charitable distribution can cut that tax bill. A spouse who inherits a Roth IRA need never take any distributions, which in any case would be tax-free. A spouse does not have to pay estate tax on money and property inherited from a deceased spouse.
Qualified Charitable Distributions
Owners of traditional IRAs can make qualified charitable distributions after reaching age 70 1/2. A qualified charitable distribution is a nontaxable trustee-to-trustee transfer from a traditional IRA to a qualified charity, which is one that accepts tax-deductible contributions. An IRA owner can transfer up to $100,000 a year through qualified charitable distributions. The amount transferred counts toward required minimum distributions. If you transfer more than the maximum amount, the excess is taxable. To ensure a qualified charitable distribution is tax-free, keep the receipts for your donations.
If you inherit an IRA from someone other than your spouse, you normally withdraw the money by the end of the fifth year following the year of the owner’s death, but you might be able to stretch the distributions over a longer period. You can’t transfer money into or out of the inherited IRA. So, even if you meet the age requirement, you can’t use the deceased’s IRA to make qualified charitable distributions. However, you can make charitable contributions with the money you withdraw from an IRA, which might reduce the amount of tax you owe on the distributions. You also might have to pay estate taxes on your inherited IRA distributions, but you might be able to deduct a portion of these from your income tax bill.
You create a beneficiary IRA by listing the deceased as the owner and yourself as the beneficiary. You can then perform a trustee-to-trustee transfer from the deceased’s IRA to the beneficiary IRA. You can’t commingle the funds in a beneficiary IRA with your own money or money you inherit from another person’s IRA. You can’t make transfers into or from these accounts, so qualified charitable distributions are not available. The biggest benefit of a beneficiary IRA is that it allows co-beneficiaries to make individual choices about their investments.
is an A+ Rated BBB
Logo BBB (Better Business Bureau)
Copyright Zacks Investment Research
At the center of everything we do is a strong commitment to independent research and sharing its profitable discoveries with investors. This dedication to giving investors a trading advantage led to the creation of our proven Zacks Rank stock-rating system. Since 1986 it has nearly tripled the S P 500 with an average gain of +26% per year. These returns cover a period from 1986-2011 and were examined and attested by Baker Tilly, an independent accounting firm.
Visit performance for information about the performance numbers displayed above.
NYSE and AMEX data is at least 20 minutes delayed. NASDAQ data is at least 15 minutes delayed.