Strategies To Avoid The 10% Early Withdrawal Penalty, Part 3 – Inherited IRA

One of the most common reasons that individuals have to tap retirement funds before age 59 ½ is the death of a spouse. These situations can put enormous financial stress if proper life insurance is not in place. It’s during these times that considering your options for your spouse’s 401(k) or IRA is imperative.

Spouses generally have at least 3 options –

  1. Disclaim the assets (some or all)
  2. Roll over the assets into an IRA in their name
  3. Roll over the assets into an inherited IRA

The most common recommendation is to roll over the IRA into their own name so they can delay taking distributions for a longer period of time. However, this general recommendation does not fit everyone. If the beneficiary is under the age of 59 ½ it may make sense for them to choose the 3rd option, opening an inherited IRA. If the assets are in an inherited IRA and the beneficiary needs to make a withdrawal, it will not be subject to the 10% penalty like it would if it were in their own IRA. Keep in mind, however, that depending on the type of IRA and on the age of the beneficiary’s deceased spouse, mandatory distributions may be required.

Disclaimer: Alex Voorhees and Reston Wealth Management do not provide legal, accounting or tax advice. This information is not intended to be a substitute for specific individualized tax or legal advice. We suggest that you discuss your specific situation with a qualified investment, tax or legal advisor. The opinions voiced in this article are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) or strategies may be appropriate for you, consult your financial advisor prior to investing. No strategy assures success or protects against loss. You should consider the investment objectives, risks, charges and expenses of any investment carefully before investing.

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Strategies To Avoid The 10% Early Withdrawal Penalty, Part 4 – The Exceptions

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Strategies To Avoid The 10% Early Withdrawal Penalty, Part 2 – 401(k) Loan