Dear Liz:<\/b> I inherited my father\u2019s IRA through a trust in 2010. Unbeknownst to me at the time, I\u2019ve now found out I should have taken that money out over the following years, but I didn\u2019t. <\/p>\n
I turned 73 in May of this year, and I\u2019d like advice on what I should do with that account.<\/p>\n
Answer:<\/b> Get thee to a tax pro. You\u2019ve got some distributions to make, taxes to pay and penalties to mitigate.<\/p>\n
Today\u2019s rules for inherited IRAs require most non-spouse beneficiaries to empty the accounts within 10 years, thanks to the SECURE Act of 2019. <\/p>\n
Before that, most beneficiaries could spread required minimum distributions over their own lifetimes. <\/p>\n
Depending on the type of trust, you might have been required to take RMDs at the same pace your father was taking them. But either way, distributions were supposed to be made.<\/p>\n
You (or better yet, your tax pro) will need to reconstruct the distributions that should have been taken since 2010, says Mark Luscombe, principal analyst for Wolters Kluwer Tax & Accounting. <\/p>\n
Those distributions should be made as soon as possible, and then you (or better yet, your tax pro) can ask for relief from the possible 25% excise tax penalty that would otherwise be owed on the distributions you missed. <\/p>\n
Your tax pro will need a copy of the trust, your dad\u2019s date of death and the IRA\u2019s Dec. 31 balances for every year since then.<\/p>\n
Dear Liz: <\/b>The letter writer who asked about Roth conversions should also consider that they or their spouse will eventually be a widow(er) and will be subject to the income tax \u201cwidow\u2019s penalty.\u201d <\/p>\n
Roth conversions now protect the survivor against some of that tax bite.<\/p>\n
Answer: <\/b>The widow\u2019s penalty refers to the higher financial burden many survivors face after losing a spouse as they change from \u201cmarried filing jointly\u201d status to \u201csingle\u201d status. <\/p>\n
While their incomes may drop, their taxes and other costs may rise.<\/p>\n
Having at least some money in a tax-free account can help with this as well as a number of other situations in retirement, which is why it\u2019s important to fund a Roth account during your working years if you can. <\/p>\n
The main downside to Roth contributions is that you don\u2019t get an upfront tax break for making them.<\/p>\n
Conversions, though, are more complicated. <\/p>\n
They trigger a tax bill and can have ripple effects, such as reducing eligibility for tax credits, financial aid or health insurance subsidies. <\/p>\n
Late-in-life conversions can increase Medicare premiums and cause more of your Social Security checks to be taxable. That\u2019s why conversions should only be considered after careful consultation with tax pros.<\/p>\n
Got a question about money? You can submit it here.<\/p>\n
Liz Weston, Certified Financial Planner, is a personal finance columnist. Questions may be sent to her at 3940 Laurel Canyon, No. 238, Studio City, CA 91604, or by using the \u201cContact\u201d form at asklizweston.com.<\/p>\n","protected":false},"excerpt":{"rendered":"Dear Liz: I inherited my father\u2019s IRA through a trust in 2010. Unbeknownst to me at the time,…\n","protected":false},"author":2,"featured_media":1177776,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":"","_share_on_mastodon":"0"},"categories":[3093],"tags":[6212,25448,51,12343,319197,4046,474,214608,22664,319195,1232,16757,2499,265475,319196,20145,1453,16,15,68327],"class_list":["post-1177775","post","type-post","status-publish","format-standard","has-post-thumbnail","category-personal-finance","tag-account","tag-answer","tag-business","tag-conversion","tag-dear-liz","tag-distribution","tag-finance","tag-following-year","tag-income-tax","tag-inherited-ira","tag-money","tag-penalty","tag-personal-finance","tag-roth-conversion","tag-tax-pro","tag-taxis","tag-trust","tag-uk","tag-united-kingdom","tag-widow"],"share_on_mastodon":{"url":"https:\/\/pubeurope.com\/@uk\/117186244354615214","error":""},"_links":{"self":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1177775","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/comments?post=1177775"}],"version-history":[{"count":0,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/posts\/1177775\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media\/1177776"}],"wp:attachment":[{"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/media?parent=1177775"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/categories?post=1177775"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.europesays.com\/uk\/wp-json\/wp\/v2\/tags?post=1177775"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}