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A Beneficiary IRA or an Inherited IRA, as it is sometimes known, is when the account is transferred to a spouse or other beneficiary after the death of the account holder. The funds from an existing Traditional, Simple or Roth IRA are transferred into an Inherited IRA. This allows the funds to remain tax-free until the IRS requests that the funds are released.

The account holder must name the beneficiary which can be a spouse or another person, such as other family members. If there is no beneficiary named a Beneficiary IRA cannot be opened. If the beneficiary is the account holder’s spouse, then the Beneficiary IRA can be opened in that person’s name and they can treat the account as if it were their own.

If the beneficiary is not a spouse then they cannot use the account as they wish and they are not allowed to move the funds to their own account. Non-spouse beneficiaries are also not allowed to keep the existing IRA account open. A Beneficiary IRA can be either a Roth, Simple or Traditional account but more funds cannot be added to the new account. The recipient will be asked to take an RMD (Required Minimum Distribution) but contributions can be deferred until this time.

Certain rules apply to the beneficiary IRA accounts. These have been made in relation to the age of the original account holder when they died, the type of the original account and the type of the new account.

In 2001 new rules were brought out to give more benefits to the Beneficiary IRA. The previous rules meant that the amount held in the account would have to be used up within 5 years. It is now the case that the money can been taken over a longer period of time, decades in some cases. This benefits the beneficiary as the money is still tax exempt.

It also meant that the original holder of the account could pay smaller Required Minimum Distribution amounts and so this could leave quite a substantial amount in the account for any beneficiaries. The spouse of the account holder can also use the account as their own or opt to add beneficiaries to the account; this means that someone else will inherit the account after the spouse has passed away.

Choosing the best retirement plan for you is crucial to ensure tat you are well catered for after you retire. The best retirement plan will have all the benefits you need to be able to survive after you stop working. It is not easy to live on just a basic pension so a boost is a bonus.

This may all seem quite confusing but it is in fact very simple. If you would like to find out more about Beneficiary IRA accounts, you can get your questions answered online. Alternatively you could speak to a financial advisor who will present the information to you in easy to understand terms.

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