Inherited IRAs
Revised By: John McDonald
The Henssler Financial Group Position Paper

When an IRA owner passes away, the IRA assets are left to the beneficiary, or beneficiaries, listed on the IRA account application or amended beneficiary form. If multiple beneficiaries are listed, each receives his or her portion as listed on the IRA beneficiary form. Similar to any other Traditional IRA distribution, if a beneficiary receives funds directly from the inherited IRA, income taxes will be incurred on the taxable portion of the distributed assets. However, the beneficiary can leave the IRA funds inside an "Inherited IRA," and take distributions from this account as required. Special rules, discussed below, apply to a spouse who inherits an IRA.

It is important for anyone who has an IRA to make sure that the beneficiary portion of the application is complete so the IRA will be left to whomever the IRA owner desires. If the assets in the IRA are substantial, naming beneficiaries and contingent beneficiaries becomes an important estate-planning tool, and should be discussed with an estate attorney.

Beneficiaries may choose to take a lump sum distribution or open an Inherited IRA. In addition, if the spouse is the sole beneficiary, the spouse may transfer the assets into his or her IRA (new or existing). The age of the original account holder influences the choices available for distributions from Traditional IRAs. Age, however, is not a factor in choices for Roth IRA distributions.

The following chart displays the choices available to beneficiaries of Traditional IRA accounts:

Beneficiary	Age of Original Account Holder		Type of Distribution Available
	Under 70½	Over 70½	Lump Sum	Inherited IRA (Five Year)	Inherited IRA (Life Expectancy)	Transfer to Own IRA
Spouse	X		Yes	Yes	Yes	Only if spouse is sole beneficiary
Spouse		X	Yes	No	Yes	Only if spouse is sole beneficiary
Non-Spouse	X		Yes	Yes	Yes	No
Non-Spouse		X	Yes	No	Yes	No
Trust	X		Yes	No	Only for Qualified Trusts	No
Trust		X	Yes	No	Yes	No
Estate	X		Yes	Yes	No	No
Estate		X	Yes	No	Yes	No

Bottom Line

The recent changes in distribution rules allow the Inherited IRA owner a much greater period of time, in most cases, to distribute the IRA assets. It is almost always beneficial for the owner of an Inherited IRA to make only the minimum required distribution each year. This allows the remaining funds to continue to grow, tax-deferred inside the IRA.

If you have inherited an IRA, you should speak to a financial adviser or tax consultant. Together you can determine when distributions should start, and the amount that should be distributed annually. For more information on Inherited IRAs, contact The Henssler Financial Group at 770-429-9166 or comments@henssler.com.