The Boston Globe recently published an alert that could be very important to anyone who inherited an IRA last year – or even this year.
If you inherited an IRA from somebody who died in 2009, there is an important deadline coming up at the end of the month. Not taking action can cost lots of unnecessary taxes and eliminate your chance to let the account grow tax free. You can read the Boston Globe article here
By September 30th of this year, the beneficiaries of an IRA owned by someone who died in 2009 must be fixed and be “qualified beneficiaries” in order to be able to stretch out distributions and allow the IRA to continue to grow tax-free.
This is important from a tax perspective because if any of the beneficiaries of the IRA are non-qualified trusts or charities, for example, all of the beneficiaries have to take full distributions within five years. Having to take the distributions over five years (instead of over the life expectancies of the beneficiaries) can result in the loss of perhaps decades of tax deferral.
This situation is most often encountered when a parent lists their children and a college or charity as the beneficiaries of an IRA. For example, if there were four children, it is not uncommon to see the kids and a college each having a 20 percent share of the IRA. In this case, if the college or charity is not removed as a beneficiary, the children lose the ability to take withdrawals over their life expectancy.
Luckily there are ways built into the law to to prevent this problem. A qualified financial or estate planner can help you come up with a strategy that’s right for you.