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Need to Split Up an Inherited IRA? Deadline—September 30th!

September 02, 2016

Have you (and other family members) recently inherited a deceased loved one’s individual retirement account? Learn how to optimize its value.

Attention beneficiaries of an inherited individual retirement account: 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 2015, that’s September 30th 2016, giving you just about a month to sort things through.

Not familiar with inherited IRAs?check out our recent blog.

We just recently wrote a blog on IRAs and the process of inheriting one. There are four options for surviving spouses when it comes to inheriting an IRA, and a couple options for non-spouse beneficiaries, as well.

What about IRAs with multiple beneficiaries?

IRAs with multiple inheritors can be separated into equal parts so that every person can optimize his/her own tax results as an individual. These designations need to be changed by the upcoming deadline of September 30th 2016.

Required Minimum Distributions (RMDs)

The impending September 30th 2016 deadline is for those who’d like to split the IRA into multiple individual accounts. Any inherited IRAs in 2015 need to meet this deadline for purposes of calculating the required minimum distribution (RMD) amount.

RMDs are required to be taken by account beneficiaries each year after an 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in a 50% penalty of the shortfall, which is the difference between the required amount and the amount that was actually withdrawn during the year.

For a younger beneficiary, splitting up the IRA is very beneficial, in that a separate account allows him/her to stretch out the inherited IRA’s tax advantages. The RMD for inherited IRAs with multiple beneficiaries is calculated by splitting up the IRA balance as of December 31st of the oldest beneficiary’s remaining life expectancy, which is not beneficial for younger heirs. With a separate account, the young beneficiary can take smaller RMDs over his/her longer life expectancy.

Take heed of these RMD rules—you don’t want to be hit with one of the most expensive tax penalties in the Tax Code. Questions? Contact a member of our Tax Services Team and we can help you separate and optimize inherited IRAs before the impending September 30th deadline.

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