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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; and

  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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