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Inheriting an individual retirement account? Here’s how to avoid a tax bomb

September 22, 2021

From the CNBC website

An inherited Individual Retirement Account (IRA) is an account that is opened when an individual inherits an IRA or employer-sponsored retirement plan after the original owner dies. The individual inheriting the IRA (the beneficiary) may be anyone—a spouse, relative, or unrelated party or entity (estate or trust). An inherited IRA is also known as a “beneficiary IRA.”

While inheriting money is typically a good thing, newer individual retirement account rules may leave some heirs with a smaller windfall.

Thanks to the Secure Act of 2019, certain heirs now have less time to take IRA withdrawals. The law stopped the so-called stretch IRA, which allowed non-spouse beneficiaries to “stretch” distributions over their lifetime.

The new law, applying to IRAs inherited on Jan. 1, 2020, or after, requires some heirs to deplete accounts within 10 years and they may owe levies on distributions, known as the “10-year rule.” 

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