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Key Date for IRA Beneficiaries....September 30th

September 27, 2017

Did you recently inherit retirement plan assets? September 30th is an important date for you.

Have you recently inherited or expect to inherit retirement plan assets? Keep September 30th in mind. The IRS stipulates that individual retirement account beneficiaries must be determined by 9/30 of the year following the retirement account owner’s death. Read on.

First of all, what is an IRA exactly?

An Individual Retirement Account, or IRA, is a type of savings account that is designed to help you save for retirement with many tax saving advantages. There are two types of IRAs- traditional and Roth.

  • Traditional IRA - You make contributions to a traditional IRA with money you may be able to deduct on your tax return, and any earnings can potentially grow tax-deferred until you withdraw them in retirement.
  • Roth IRA - You make contributions with after-tax dollars (money you’ve already paid taxes on), and your money may potentially grow tax-free, with tax-free withdrawals in retirement, provided that certain conditions are met. (A distribution from a Roth IRA is tax-free and penalty-free provided that you have owned the IRA for a minimum of five years and one of the following conditions is met: age 59½, death, disability, qualified first time home purchase.)

How to determine the designated beneficiary

Whenever someone opens a retirement account, he/she must designate beneficiaries to inherit the assets. The designated beneficiary must be a person or a trust of individuals and not an estate or charity. If there is more than one designated beneficiary, the life expectancy of the oldest beneficiary is used to determine post-death distributions. For IRAs with more than one beneficiary, inheritors can separate the plan into equal parts so that every person can optimize their own tax results.

September 30 deadline

The deadline for finalizing beneficiaries of a deceased IRA owner’s account is September 30th of the year following the account owner’s death. So for an IRA owner who died in 2016, the beneficiary must be finalized by September 30th 2017.

So, you can split up an inherited IRA for better tax results?

For those who’d like to split up an IRA into multiple individual accounts, they must do so by September 30th as well. Any inherited IRAs in 2016 need to meet this deadline for purposes of calculating the required minimum distribution (RMD) amount. RMDs are required to be taken by beneficiaries each year after the IRA owner’s death. Non-compliance with RMD rules can result in a 50% penalty of the shortfall, which is the difference between the required amount and the amount that was actually withdrawn during the year.

Wondering if you have all you need for this impending deadline? Our team is here to help – Contact us today.

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