Ten Mistakes Not to Make with an Inherited IRA

One-third of U.S. households own at least one type of IRA, so chances are that you might inherit one in the future. If that happens, you’ll need a plan—a plan that avoids common and sometimes costly mistakes. USA Today’s article, “If you inherit an IRA, make a plan before doing a thing,” lists 10 common inherited IRA mistakes:

1. Failing to set up the inherited IRA properly
2. Using the incorrect Life Expectancy Tables—the Single Life Table must be used
3. Using the incorrect Life Expectancy factor—the life expectancy factor of the beneficiary in the current year must be used
4. Not taking the Required Minimum Distribution (RMD) after death of the owner and in future years (result: a 50% penalty)
5. Using the incorrect IRA balance for the RMD calculation—the value of the account as of December 31st of the prior year must be used to calculate the RMD (under-withdrawal means a 50% penalty)
6. Not naming beneficiaries could mean acceleration of distribution for the inherited IRA beneficiary
7. Failing to make a trustee-to-trustee transfer in the establishment of an Inherited IRA—no 60-day rollover rule here
8. Including other non-inherited IRA funds to an inherited IRA
9. Not confirming that the RMD is taken out of account by December 31st each year
10. Not establishing the inherited IRA before December 31st of the year following the death of the owner.

Reference: Reference: USA Today (March 15, 2016) “If you inherit an IRA, make a plan before doing a thing”

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