60 Day Rollover Inherited IRA: Understanding Your Options

If you've inherited an IRA, you have some important decisions to make about how to manage the assets. Typically, inherited IRAs are subject to required minimum distributions (RMDs), which means you'll need to take annual withdrawals.

You may be eligible for a 60-day rollover, which allows you to transfer the inherited IRA assets to a new IRA within 60 days without incurring taxes or penalties. This can be a good option if you want to consolidate your retirement accounts or change your investment strategy.

To qualify for a 60-day rollover, the inherited IRA must be a qualified plan, such as a 401(k) or a traditional IRA. You'll also need to make sure the rollover is completed within the 60-day window to avoid any issues.

The 60-day rollover rule is a strict timeline that requires your attention. You have 60 days to transfer funds from an inherited IRA into another inherited IRA.

Missing this window can lead to tax consequences, which could result in additional taxes and penalties. The good news is that some exceptions exist, but they're limited and require specific circumstances.

The clock starts ticking as soon as you receive the distribution personally, not when the funds are transferred between IRAs by the custodian. This means you must deposit the full amount into another inherited IRA within 60 days to avoid tax consequences.

The original account owner's name must remain alongside yours as the beneficiary in the newly created inherited IRA. This ensures compliance with the distribution rules that govern inherited IRAs.

As you navigate the process of inheriting an IRA, it's essential to understand your options. You have two primary ways to manage the rollover: a direct rollover or a 60-day rollover.

A direct rollover allows you to transfer the funds directly from the inherited IRA to a new IRA or other eligible retirement account, bypassing the need to take possession of the funds. This option can help minimize taxes and penalties.

Each option comes with its own set of benefits and potential downsides, so it's crucial to understand them before making a decision.

You can inherit an IRA from a deceased spouse, and the IRA may be treated as your own, allowing you to make contributions and roll over amounts out of the IRA.

However, if you inherit an IRA from someone other than your spouse, it's not treated as your own IRA, and you can't make contributions to it or roll over amounts out of it.

As a nonspouse beneficiary, you can transfer the inherited IRA benefits directly to an IRA, which is then treated as an inherited IRA of yours.

The IRS has the authority to waive the 60-day requirement for rollovers in cases where failure to do so would be against equity or good conscience, such as in cases of casualty or disaster.

Certain distributions, like corrective distributions of elective deferrals in excess of the elective deferral limits, aren't eligible for rollovers.

If you're a five-percent owner of a plan or receive a distribution from an IRA, you must begin taking distributions by April 1 of the calendar year following the year you turn 70½.

You can name a single beneficiary or multiple beneficiaries, including charities, to inherit your Inherited IRA.

The beneficiary you choose will receive the inherited IRA assets, so it's essential to consider who you want to inherit your wealth.

You can name a minor as a beneficiary, but the assets will be held in a custodial account until the minor reaches the age of majority, which varies by state.

It's also possible to name a trust as a beneficiary, which can provide more control over how the assets are distributed.

The 60-day rollover rule for inherited IRAs can be strict, but there are exceptions to consider. Missing the deadline can lead to taxable income and penalties, but the IRS offers relief in certain situations.

If you or a close family member suffers from a major illness or injury, this can qualify as a reason for an exception. This can give you extra time to manage the rollover without facing tax consequences.

The loss of the account owner or a beneficiary can cause delays in managing the inheritance, including the rollover process. This is a valid reason for the IRS to grant additional time.

Natural disasters like hurricanes, earthquakes, or wildfires can also interfere with your ability to complete the rollover. If the disaster is officially recognized by the government, relief may be provided.

Financial institution mistakes, such as errors by your IRA custodian or another financial institution, can also qualify for an exception. These mistakes are a common reason for the IRS to grant additional time.

Direct transfers between IRAs by the IRA custodian don't trigger the 60-day rule. This is a helpful exception to keep in mind when managing your inherited IRA.

To complete a 60-day rollover for an inherited IRA, you'll need to request your distribution from the financial institution handling the account. This will typically be done via check or direct deposit, and you'll need to know the exact amount to redeposit within the 60-day deadline.

You should immediately mark the 60-day deadline after receiving the distribution, as this is the time you have to redeposit the funds into a new IRA or qualified retirement plan without triggering a taxable event. You can track this deadline to ensure you stay on schedule.

To complete the rollover, you'll need to open a new inherited IRA account that will receive the funds. This account should be ready to accept the rollover when you're prepared to deposit the money.

Here are the steps to complete the 60-day rollover:

Make sure to keep detailed records of every step, including the dates of distribution and redeposit, as this record-keeping is crucial if you need to verify that the rollover was completed properly.

To notify the IRA custodian, you'll need to contact them in writing, typically via mail or email, with a clear and concise letter stating your intention to take a loan or distribution from your IRA.

The letter should include your name, address, and account number, as well as a clear statement of your request.

The custodian will then verify your identity and account information before processing your request.

This process usually takes a few days to a week, depending on the custodian's workload.

The funds will be sent to you via check or direct deposit, so it's essential to know the exact amount to redeposit within 60 days. This is the time you have to redeposit the funds into a new IRA or qualified retirement plan without triggering a taxable event.

You'll need to track the deadline carefully, as it's a crucial part of the 60-day rollover process. This is the date you'll need to redeposit the funds to avoid unnecessary taxes.

To complete the transfer, you'll need to deposit the full distribution into your new IRA or retirement account before the 60 days are up. If taxes were withheld when you received the funds, you must replace that amount with other resources to roll over the entire distribution.

Here's a summary of the transfer process:

Maintaining detailed records throughout the process is crucial, including the dates of distribution and redeposit. This record-keeping is essential if you need to verify that the rollover was completed properly.

Misunderstanding the rollover rules can lead to your distribution being mistakenly taxed as income.

Failing to meet the 60-day deadline can result in the distribution being treated as taxable income, which may come with penalties.

Not every distribution qualifies for a rollover, and accidentally rolling over ineligible funds, such as required minimum distributions (RMDs), can cause significant tax problems.

Incorrect rollover execution, including not rolling over the correct amount or failing to follow the necessary steps, can trigger penalties and other financial issues.

If the 60-day rollover isn't completed within the time frame, the funds received might be added to your taxable income for that year, substantially increasing your overall income.

This can lead to a higher tax bracket, resulting in a greater tax bill. The IRS may also impose an early withdrawal penalty of 10% on the distributed amount for those under age 59½.

If the rollover isn’t completed within the 60-day period, the funds you receive might be added to your taxable income for that year, substantially increasing your overall income.

This can lead to being placed in a higher tax bracket, resulting in a greater tax bill. The rise in income could also limit your ability to qualify for certain tax credits and deductions.

For those under age 59½, the stakes are even higher, as the IRS may impose an early withdrawal penalty of 10% on the distributed amount. This penalty comes on top of the regular income taxes, significantly increasing the total tax owed.

As a beneficiary, you'll need to report your inheritance as part of your taxable income. You may receive a Form 1099-MISC from the estate's executor, showing the value of the assets you received.

The value of the assets you inherit is considered a taxable gift, and you'll need to report it as ordinary income. This is known as the "gross income" from the inheritance.

You can exclude from taxation the value of property that qualifies as a "qualified small business stock" (QSBS) for up to $10 million. This is a tax break that can save you thousands of dollars.

As a non-spouse beneficiary, you have limited options when it comes to inheriting an IRA. Similar rollovers are permitted, but not to the extent of a surviving spouse. This means you can't make contributions to the IRA or roll over amounts out of the inherited IRA.

The good news is that you can transfer the benefits of the IRA directly to a new IRA, which will be treated as an inherited IRA of the nonspouse beneficiary. This is a more straightforward process than attempting to roll over the funds into your existing IRA.

Distributions from the inherited IRA must be made under the rules that apply to beneficiaries, which can be complex and time-sensitive. Missing the 60-day window might mean the distribution becomes taxable, which could lead to additional taxes and penalties.

When you're dealing with non-spouse beneficiaries, it's essential to understand the different types of beneficiaries you can have.

A minor beneficiary is someone under the age of 18, and in most cases, their inheritance will be held in a trust until they reach adulthood.

An adult beneficiary is someone 18 years or older, and they can inherit assets directly.

A contingent beneficiary is someone who inherits assets only if the primary beneficiary is unable or unwilling to receive them.

A remainder beneficiary is someone who inherits assets after the primary beneficiary has passed away.

A special needs beneficiary is someone who requires ongoing care and support, and inheriting assets could impact their eligibility for government benefits.

If you're a non-spouse beneficiary, you have some specific rules to follow when it comes to inherited IRAs.

You can't roll over amounts out of an inherited IRA, unlike the original IRA owner.

If you inherit an IRA from your deceased spouse, it may be treated as your own IRA, but this doesn't apply to IRAs inherited from someone other than your spouse.

The IRA will be treated as an inherited IRA, and you'll have to follow the distribution rules applicable to beneficiaries.

Distributions from the inherited IRA must be made according to the rules that apply to beneficiaries.

You won't be able to make contributions to the IRA or roll over any amounts out of it.

The IRS has the authority to waive the 60-day requirement for rollovers if failure to do so would be against equity or good conscience.

Certain distributions, such as corrective distributions of elective deferrals, are not eligible for rollovers.

After-tax amounts distributed from a plan can only be rolled over to a plan of the same type or to an IRA.

If you're a five-percent owner or receive a distribution from an IRA, you'll have to start taking distributions by April 1 of the calendar year following the year you turn 70½.