How Much Can You Withdraw from an Inherited IRA?
Understanding the rules and regulations surrounding inherited IRAs is crucial for anyone who has inherited such an account. One of the most common questions that arise is, “How much can you withdraw from an inherited IRA?” The answer to this question depends on several factors, including the type of IRA, the relationship between the original account holder and the inheritor, and the age of the inheritor.
Firstly, it’s important to distinguish between two types of inherited IRAs: a traditional IRA and a Roth IRA. The withdrawal rules for each type differ significantly.
For a traditional IRA, the inheritor is required to take minimum required distributions (MRDs) each year, just like the original account holder. The amount of the MRD is calculated based on the account’s value and the inheritor’s life expectancy. The inheritor has several options for taking these distributions:
- Stretch IRA: The inheritor can take MRDs each year based on their life expectancy, which can potentially stretch the distributions over many years.
- Five-year rule: The inheritor can withdraw the entire balance of the inherited IRA within five years of the original account holder’s death.
- Spousal rollover: If the inheritor is the surviving spouse, they can roll over the inherited IRA into their own IRA and continue taking MRDs based on their life expectancy.
In the case of a Roth IRA, the rules are different. Roth IRAs offer tax-free withdrawals for the inheritor, as long as the original account holder was at least 59½ years old or had a qualifying reason for taking an early distribution. If the original account holder was younger than 59½, the inheritor may still be able to take tax-free withdrawals if they meet certain criteria, such as the original account holder’s death being due to a qualifying event.
The amount you can withdraw from an inherited IRA also depends on the relationship between the original account holder and the inheritor. If the inheritor is a spouse, minor child, disabled individual, or a person who is not more than ten years younger than the original account holder, they may have more flexibility in taking distributions. However, if the inheritor is a non-spouse, they are typically subject to the five-year rule or the stretch IRA option.
It’s essential to consult with a financial advisor or tax professional to understand the specific rules and regulations that apply to your situation. They can help you determine the best strategy for taking distributions from an inherited IRA, taking into account your financial goals and tax implications.
In conclusion, the amount you can withdraw from an inherited IRA varies depending on the type of IRA, the relationship between the original account holder and the inheritor, and the age of the inheritor. By understanding these factors and seeking professional advice, you can make informed decisions about managing your inherited IRA.
