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Inheriting a retirement account can be complicated.
With a retirement account that you opened, you’re referred to as the original owner. You can contribute to this portfolio, manage it as you see fit, and leave the money in place subject only to required minimum distributions (RMDs) in some cases. When you inherit a retirement account, the rules change. You cannot make new contributions and, depending on your relationship to the original owner, you may need to withdraw this money within 10 years of receiving it.
With an inherited account, the most important distinction is between “designated beneficiaries” and “eligible designated beneficiaries.” An eligible designated beneficiary has far more leeway to manage the inherited account as they see fit, with potentially significant tax implications.
For example, say that your husband has passed, leaving you his 401(k) with $615,000 in it. As a spousal beneficiary, you have a broad range of options for how you can manage this money. And if you need guidance specific to your situation, you can always consult with a financial advisor.
Inheriting a tax-advantaged retirement account is subject to different rules than inheriting a standard investment portfolio. Most notably, you cannot make additional contributions to this account. Beyond that, the IRS has rules for how long you can leave this money in place based on which category of heir you fall into: spousal beneficiaries, eligible designated beneficiaries, or designated beneficiaries.
Readers should note that we will discuss the rules for accounts inherited in 2020 and later, as those rules were changed in the SECURE and SECURE 2.0 Acts. These rules also apply to inherited Roth accounts, even though a Roth portfolio is typically exempt from RMD rules.
Spousal beneficiaries are considered a subcategory of eligible designated beneficiaries. You are a spousal beneficiary if the retirement account belonged to your spouse at the time of their death.
If you are a spousal beneficiary, you have three options. You may:
Take RMD distributions from the account, based on either your life expectancy or the original owner’s life expectancy
Withdraw the entire amount within 10 years (the 10 Year Rule)
Roll the account into your own IRA
The availability of these options can depend on the status of this retirement account at the time of your spouse’s death. Rolling inherited funds into your own IRA will not change the rules of that account. You can continue making contributions to the IRA as usual, regardless of the inherited assets. Consider speaking with a financial advisor about your specific case. The right financial advisor can help you navigate the rules and execute your strategy.
An eligible designated beneficiary is someone who meets one of a handful of specific qualifications. This includes:
The spouse of the deceased (see above)
A minor child of the deceased
A disabled or chronically ill individual
An individual no more than 10 years younger than the deceased
If you are an eligible designated beneficiary other than a spouse, you have the following options:
Take RMD distributions based on the longer of either your life expectancy or the deceased’s life expectancy
Withdraw the entire amount within 10 years (the 10 Year Rule)
You cannot roll this account into another IRA. If you withdraw the funds under the 10 Year Rule, you must take out the assets and trigger a tax event.
Designated beneficiaries are all heirs who are not considered eligible designated beneficiaries. Put another way, if you do not meet one of the categories above, you are a designated beneficiary. These heirs must follow the 10 Year Rule, meaning that they must withdraw all assets from the inherited account within 10 years of inheriting it.
Inheriting a retirement account raises tax issues. This is by design, since the IRS wants to ensure that tax-advantaged portfolios are emptied and taxed without simply being handed off from generation to generation. As explained by financial and insurance advisor Lucas Barcelo, founder of Thrivin’ Life, “you have a few solid options [and] the best path for you is going to be determined by your current situation… For example, your age, your tax bracket, and your expected income in retirement to name a few.”
A financial advisor can always help you determine and manage your tax liability.
Here, you are a spousal beneficiary with $615,000 in an inherited 401(k). While you cannot make additional contributions to this account, you have a broad range of options for managing it. This includes:
As a spousal beneficiary, you may roll your husband’s entire 401(k) into an IRA that you own. This is, said Barcelo, “by far the easiest (and usually smartest) move.”
If you roll the money into a traditional IRA, this rollover will not trigger a tax event. That means that, in the immediate future, this can be an effective way to manage taxes. Rolling the money into a Roth IRA will trigger a tax event in the form of conversion taxes, as you will need to pay income taxes on all money rolled into a Roth IRA. Here, you would expect to pay an estimated $180,514 in conversion taxes if you rolled the money over all at once, potentially leaving you with about $434,486 in the Roth IRA.
Once the money has been put in an IRA for which you are the original owner, you can continue to make additional contributions with qualified money.
If you put the money into a traditional IRA, it will be subject to RMDs based on your life expectancy. You will need to begin taking taxed distributions at age 73 or 75 depending on your current age.
Anda memiliki pilihan untuk mengambil distribusi minimum yang diperlukan atau menggunakan aturan 10 tahun. Bergantung pada keadaan, ini dapat memungkinkan Anda untuk menjaga uang Anda di tempat bahkan setelah RMD biasanya dimulai.
Barcelo menjelaskan: “Dalam skenario di mana pasangan yang meninggal belum mengambil RMD, pasangan yang masih hidup dapat memilih untuk menunda mengambil dana hingga 10 tahun ke depan (pada saat itu seluruh akun harus dilikuidasi atau dialihkan ke IRA milik survivor) meskipun dalam 10 tahun tersebut, pasangan yang masih hidup memiliki kewajiban RMD pada akun pensiun mereka sendiri.”
Ini berarti bahwa Anda dapat menggunakan akun pensiun warisan untuk meninggalkan dana di tempat bahkan setelah Anda mulai mengambil uang dari akun lain, potensial hingga usia 73 atau 75 tergantung pada keadaan individu Anda.
Jika almarhum sudah mulai mengambil RMD, kata Barcelo, maka akun akan tetap tunduk pada distribusi minimum. “Jika RMD tidak sepenuhnya menguras akun dalam waktu 10 tahun, maka saat waktunya tiba, survivor harus mengalihkan saldo atau mencairkan seluruhnya.”
Dengan menggunakan Aturan 10 Tahun, Anda dapat mengurangi pajak dengan penarikan bertahap. Menyisakan uang di tempat akan memaksimalkan pengembalian yang menggumpal. Namun, setiap rencana di mana Anda menarik uang dalam satu kali tembakan juga akan memaksimalkan peristiwa pajak Anda. Jika Anda menarik uang ini dalam jumlah kecil, satu tahun pada satu waktu, Anda akan mengurangi bracket pajak dan tarif pajak efektif Anda, dan sebagai hasilnya menahan pajak Anda. Ingatlah, Anda dapat menggunakan alat gratis ini jika Anda tertarik untuk berbicara dengan penasihat keuangan.
Akun pensiun warisan bisa sangat rumit. Jika pasangan Anda meninggal dan meninggalkan Anda portofolio mereka, satu jalur umum adalah menggulingkannya ke IRA Anda sendiri. Tetapi jika itu bukan rencana terbaik saat ini, Anda memiliki beberapa opsi lain.
Seorang penasihat keuangan dapat membantu Anda membangun rencana pensiun yang komprehensif. Menemukan penasihat keuangan tidak perlu sulit. Alat gratis SmartAsset mencocokkan Anda dengan penasihat keuangan yang terverifikasi yang melayani area Anda. Anda dapat memiliki panggilan perkenalan gratis dengan kandidat penasihat Anda untuk memutuskan mana yang menurut Anda tepat untuk Anda. Jika Anda siap untuk menemukan penasihat yang dapat membantu Anda mencapai tujuan keuangan Anda, mulailah sekarang.
Jangan biarkan hal ini menjadi kejutan. Perencanaan estate bisa menjadi tugas yang suram, tetapi Anda tidak ingin orang yang Anda cintai harus mencari tahu hak dan kewajiban mereka setelah kenyataan.
Simpan dana darurat di tangan jika Anda menghadapi pengeluaran tak terduga. Dana darurat harus likuid — di rekening yang tidak terkena risiko fluktuasi signifikan seperti pasar saham. Pengorbanannya adalah bahwa nilai uang tunai dapat tergerus oleh inflasi. Tetapi rekening bunga tinggi memungkinkan Anda untuk menghasilkan bunga majemuk. Bandingkan rekening tabungan dari bank-bank ini.
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Kredit foto: Grok
Pos yang saya Warisi 401(k) Suami Saya Dengan $615k. Bagaimana Cara Menangani Uang Ini untuk Mengurangi Pajak? muncul pertama kali di SmartReads oleh SmartAsset.