Does 60 Day Rollover Apply to Inherited IRA?
Understanding the intricacies of inherited IRAs can be challenging, especially when it comes to the 60-day rollover rule. This article aims to clarify whether the 60-day rollover applies to inherited IRAs and provide guidance on the rules and regulations surrounding this topic.
What is an Inherited IRA?
An inherited IRA is an individual retirement account (IRA) that is passed on to a beneficiary after the original account owner’s death. Inherited IRAs can be in the form of traditional IRAs, Roth IRAs, or SEP IRAs. The rules and regulations governing inherited IRAs differ from those of a regular IRA, and it’s essential to understand the nuances to avoid costly penalties and tax implications.
What is the 60-Day Rollover Rule?
The 60-day rollover rule allows IRA account holders to transfer funds from one IRA to another without incurring taxes or penalties. However, the rule has specific conditions that must be met. To qualify for the 60-day rollover, the following requirements must be met:
1. The rollover must occur within 60 days of the original distribution date.
2. The funds must be deposited into a new IRA.
3. The rollover cannot be repeated within a one-year period.
Does the 60-Day Rollover Apply to Inherited IRAs?
The short answer is no, the 60-day rollover rule does not apply to inherited IRAs. Inherited IRAs have a different set of rules and regulations, which are designed to encourage beneficiaries to take distributions over time rather than all at once.
Understanding the Rules for Inherited IRAs
Instead of the 60-day rollover rule, inherited IRAs are subject to the following distribution rules:
1. Required Minimum Distributions (RMDs): Beneficiaries of inherited IRAs are generally required to take RMDs based on their life expectancy. These RMDs must begin by the end of the year following the year of the original account owner’s death.
2. Five-Year Rule: If the original account owner did not take RMDs before their death, the beneficiary has five years to take all remaining funds from the inherited IRA.
3. Spousal Beneficiaries: Spousal beneficiaries have the option to treat the inherited IRA as their own and continue making contributions, as long as they do not rollover the funds into their own IRA.
Conclusion
In summary, the 60-day rollover rule does not apply to inherited IRAs. Beneficiaries must adhere to the specific rules and regulations governing inherited IRAs, which include RMDs and the five-year rule. It’s crucial to understand these rules to avoid potential penalties and tax implications. Consulting with a financial advisor or tax professional can provide further guidance on managing inherited IRAs.
