It’s better to know your options and potential consequences to your decisions before making them.If you want to avoid the immediate tax burden triggered by a lump sum withdrawal from the inherited IRA, or if you don’t need the money now, you can keep the assets invested.That means they do not have the benefit of being taxed at the lower capital gains tax rates (currently zero, 15 or 20 percent, depending on your tax bracket).
Ways to reduce the chance of hitting a higher marginal tax bracket include splitting the withdrawal into different tax years or taking funds out of the inherited IRA in a more favorable income tax year.
Unless you have a low income tax year, taking a lump sum may not be the most tax-efficient way to receive your inherited assets.
You’ll want to work with an adviser who has all the facts of the situation, to ensure that you meet the tax regulations and avoid IRS penalties.
When keeping an inherited IRA, it’s also important to consider the investment allocation of the account.
Are you willing and able to invest and manage the account for yourself?
These considerations will help you determine whether to hire an adviser to manage the account for you.Before you decide to cash in some or all of your inheritance, there are two important considerations: the income tax implications and the risk of comingling your inheritance.Withdrawals from an IRA account, whether an inherited IRA or a regular IRA, are taxed as ordinary income for the year of withdrawal.This is important to protect your inheritance should you get a divorce at any time during the rest of your life.While the regulations vary by state, once inherited funds are comingled into a jointly held account, they become marital property that could end up in your ex-spouse’s pocket.If you decide to keep the inherited IRA invested, then you will need to make sure that it is titled correctly and designate your own beneficiaries.