IRAs and other types of retirement accounts are perceived by many people as pretty simple plans. But, as we have discussed in the past, there are many complexities to IRAs that can cause big problems. And when it comes to inheriting an IRA, the rules and guidelines are more complicated than most people realize. Without the proper understanding, an IRA inheritance could spell disaster.
It is not unusual for IRA heirs to not know about or misunderstand some key rules and guidelines. A wrong move can often cause much of the inherited IRA to end up with the IRS from income and estate taxes. And unfortunately, the IRS does not give much mercy at all when things are not done properly, even from ignorance of the rules. Here are some key inherited IRA mistakes that can be disastrous.
Inaccurate or wrong documents – Your will or living trust has no effect on an IRA. Only the beneficiary designation form matters. IRA owners often make the mistake of using the wrong form or not designating a beneficiary all together.
Misplaced documents – Make sure you keep your documents. Don’t depend on your custodian to keep copies as they may not have them, especially if it was filed many years ago or the company has merged one or more time. Not being able to produce your documents can cause big problems.
Ignoring Spousal Options – Spousal beneficiaries have special options available to no one else. Spouse’s who do not know or understand these special options can lose valuable money.
Not Realizing the Tax Issues – Most inherited IRA accounts are completely and fully taxable to the beneficiaries. Fortunately, there are ways to minimize these taxes, but most people are not aware of them or do not follow the specific guidelines. Consequently, they lose out on the tax savings options and cost themselves money.
Inheriting money, specifically IRAs, is a complex process filled with many rules and guidelines. If not understood or followed properly, an inheritance can turn into a disaster. To learn more about these and other mistakes to avoid, tune into The Retirement Money Matters Show this weekend. The show airs on Saturday morning at 10:30 on WILO (1570 AM), Sunday morning at 8:30 on Shine 99 (99.7 FM), or online at www.theretirementmoneymattersshow.com. You can also obtain this information and the independent advice for your specific situation by contacting me at Hayes Advisory Group at 452-PLAN (7526), 800-939-1603 or brian@hayesadvisorygroup.com.
Investment Advisory Services offered through Brookstone Capital Management LLC, a SEC Registered Investment Advisor. Any statements contained herein are not intended to be construed as tax advice. You should consult your tax advisor as to any tax or related matters.