Money Monday: Your Financial Inheritance

Conceptual photo showing printed text inherited ira
Conceptual photo showing printed text inherited ira

At least forty percent of Americans have an Individual Retirement Account (IRA). Said another way, in the few months of this year, there was an estimated twelve trillion held in IRA accounts. That means that there is a good likelihood you either may inherit an IRA from your parents, or that you will leave an IRA with some funds in it for your children to inherit. But what if you are the beneficiary of an IRA? How would you handle your affairs and what should you know about some rule changes?

Individual Retirement Accounts (IRA):

An individual retirement account is a retirement saving account. These accounts allow an individual to invest a percentage of their income from their employer towards their retirement. There are at least two types of IRA’s, Traditional and Roth.

Under a traditional IRA, whatever income an individual wants to contribute from their employer to their retirement is not taxed at the time of the contribution. However, when a person retires and wants to make a withdrawal from that IRA, that money will be taxed at their tax rate at that time. On the other hand, with a Roth IRA, taxes are paid on the money invested into the IRA at the time of the contribution. That means that later on when the person retires, taxes will not be required to be paid.

Each possesses several advantages and disadvantages. With a traditional IRA, withdrawals must begin at age 73, you will have to pay taxes when the money is withdrawn and you must have earned income in order to contribute. However, your contributions are tax deductible and there is no age limit on contributions.

With regards to a Roth IRA, contributions are not tax deductible and you are eligible to contribute based upon how much you earn. While on the other hand you are not required to withdraw from your retirement, meaning no Required Miminum Draw (RMD) and you will not pay taxes on your withdrawals.


As the adage goes, the only thing certain is death and taxes. While they may be certain, the exact time when they will occur is uncertain. Now, if from an inheritance point of view, if you had to choose a time to receive an IRA, it would have been before the year 2020. An IRA beneficiary prior to 2020 would have been able to withdraw their inherited IRA over their expected lifetime. Today, the rules have changed and you can either withdraw your inheritance from an IRA all at once and pay the taxes on the entire amount (and that would not be the best option). Or, you would transfer it to another inherited IRA account and make withdrawals over time without any tax penalty.

If you are the beneficiary of a Roth IRA and not a traditional IRA, then you have up to ten years to withdraw your inheritance and you pay no taxes on the amounts withdrawn. The good news is that if you can wait until the tenth year to withdraw the inherited Roth IRA, then you get to enjoy ten years of tax free interest growth. One point to keep in mind though is that if the original owner of the IRA was required to execute Required Minimum Draw (RMD), then you will also be required to do the same, but perhaps not in the same amount. If you fail to execute RMD’s the IRS will penalize you up to 25% of the RMD amount.

Addressing IRA Taxes

So what exactly do you need to understand when it comes to inheritance IRA and taxes? You became aware that you are the beneficiary of an IRA. The first thing you might consider doing is opening an inheritance IRA and make a request of the trustee or executor to transfer the money into your newly created inherited account. Two main reasons for making this transfer are, first, you will not be able to leave the money in the owner’s account unless you are a surviving spouse. Secondly, placing the money into your inherited IRA will save you taxes on the entire amount and you can invest and withdraw amounts over time.

Unfortunately, if you are thinking of withdrawing the money and placing it into your own personal IRA, you will be unable to do so. The point here is that if you receive payments by check concerning the deceased’s IRA, you will have to pay taxes on the entire amount.

Even if you may not be the beneficiary of an IRA, you should start thinking about how your investments will affect the inheritance of your children, and or spouse when you die. While your spouse may not be required to withdraw their inheritance within ten years, your children may have to conform to the rule.

One final thought would be to convert some of your traditional IRAs into a Roth IRA thereby reducing the tax burden on your children when they withdraw or inherit funds.

That’s What’s UP!

Today’s What’s Up is about payment Apps protection. Perhaps you have never stopped to consider this, but what if the bank where Cash App keeps your money goes bankrupt, is your money or transaction protected?

A recent Consumer Financial Protection Bureau (CFPB) report found that the funds you and I deposit with Cash App, PayPal , Venmo and other peer-to-peer payment options, are not protected or covered in the same way as the money you have deposited in your checking or saving account at the bank.

In other words, those funds are not covered by the Federal Deposit Insurance Company (FDIC). Let that sit with you for a week. Next week I will share what, if anything, you can do about it in reducing your risk.And that’s what’s up!

Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2023. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.

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