How Do I Cash Out an Inherited Roth IRA?

Due to recent tax code changes, beneficiaries of inherited IRAs have limited options when it comes to rolling over their assets into new accounts in their names and spreading withdrawals over a lifetime. If you qualify as an eligible designated beneficiary, however, rolling the assets over into one may provide greater flexibility for withdrawals over time.

Prior to making any decisions on an inherited Roth IRA, it’s essential that you consult with a financial professional. They can help explain your options and assist in making the best choice possible for you.


If you inherit an IRA, its taxes depend on its type and when its original owner passed away. RMDs may also need to be taken regularly. Spouse beneficiaries can roll this money over into their own account in order to reduce or defer income tax liability; non-spouse beneficiaries may need to empty it over 10 years or pay the 10% penalty tax.

Inheriting an IRA can be complex, especially after the death of a loved one. A reliable financial planner can guide your decisions to minimize taxes and penalties that might apply in certain instances. When making decisions relating to beneficiaries it’s also important to consider their individual finances – for instance a high-income beneficiary could incur costly Medicare premiums and taxes on Social Security benefits which must also be taken into consideration.

Required minimum distributions

Once you inherit an IRA, annual minimum distributions (RMDs) must be taken as per its requirements. RMD options depend on several factors including age and relationship of deceased account owner as well as type of inherited IRA.

If your loved one named you as an individual beneficiary, the five-year rule can help you withdraw funds more slowly while incurring an extra tax obligation on gains portion of distributions.

Assuming ownership of an IRA for your spouse can help save taxes and eliminate probate costs; working with an expert is recommended in this process to make sure you receive appropriate distributions and adhere to legal regulations.

Investment options

After an account holder dies, their beneficiaries have several options for how they want the IRA distributed. This decision ultimately depends on your relationship to them as well as if a traditional or Roth IRA existed at that time; to make the best choice and seek advice from financial professionals when making this important decision.

The most frequently chosen option for handling an inherited IRA is rolling it over into your own IRA, as this enables you to treat it as though it had always been yours and can reduce taxes. However, taking RMDs may be required under this option and early withdrawal penalties of 10% apply; otherwise you could choose a lump-sum withdrawal and pay income tax on its entire amount; though this could be attractive if the account holder was your spouse, although you will lose tax-deferred growth potential in doing so.

Distribution options

Assuming ownership of a Roth IRA can be rewarding, but you must understand its regulations to maximize its benefit. Consulting an advisor would be advised.

There are various distribution options depending on your relationship to the original account owner and if you are designated as beneficiary. If you are married to an account holder, taking over ownership through a spousal transfer can allow for more gradual withdrawals based on life expectancy and can avoid early withdrawal penalties of 10%.

You have two options when taking out an inherited Roth IRA: 1) Take a lump-sum distribution and pay income taxes on it all at once 2) You are not the designated beneficiary 3) You can take out a lump-sum distribution and follow regular Roth IRA withdrawal rules

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