1. How can I ensure that my IRA won’t be consumed by inheritance and income taxes?
A. To plan a “stretch” IRA is one way to ensure that an IRA isn’t consumed by inheritance and income taxes.
2. Is it possible to combine a “stretch” IRA with your personal IRA?
A. If you inherit an IRA from anyone other than your husband or wife, you cannot, under any circumstance, roll it into your own personal IRA
3. Are there other disadvantages of “stretch” IRA’s?
A. Other disadvantages of “stretch” IRA’s are:
• You cannot withdraw the assets from an inherited account and then deposit into a new IRA.
• You cannot consolidate IRA’S you inherit from different people into a single account.
4. Regarding IRA’s, what is meant by “basis”?
A. IRA Basis is the amount of nondeductible IRA contributions made.
5. When inheriting an IRA should there be concern about “basis”?
A. Yes! If the person you inherited the IRA from had basis, you inherit that basis in the IRA.
6. Where would I obtain the IRA basis of an inherited IRA?
A. Attached to any income tax return is Form 8606, which reveals the basis of an IRA.
7. As the beneficiary of an IRA, taking distributions, should there be concerns about taxes?
A. If you are an IRA beneficiary and taking distributions from an inherited IRA; some of those distributions may be tax-free.
8. As the beneficiary of an inherited IRA, how do I determine if the distributions are tax-free?
A. To determine if the distributions received from an inherited IRA are tax-free you will have to know if the person you inherited from ever made contributions.
9. Where is the information obtained regarding IRA contributions?
A. Information regarding nondeductible IRA contributions may be obtained by reviewing Form 8606 (nondeductible IRA’s) attached to income tax returns.
10. When were nondeductible IRA’s established?
A. Nondeductible IRA’s begin in 1987.
11. If no Form 8606 can be found does that mean that there no nondeductible IRA contributions were made?
A. No! If no Form 8606 was found, it does not automatically mean that no non-deductible IRA contributions were made. It may mean that the form was never filed.
12. Can I trust a professional tax preparer to be aware of any IRA nondeductible contributions implications?
A. No! Not necessarily. It is sometimes rare that even a professional tax preparer thinks to inquire if there were any nondeductible IRA contributions made by the person from whom the IRA was inherited.
13. Is it a requirement to withdraw an inherited IRA entirely, in one lump sum?
A. No! IRA’s that you inherit have one important thing in common with the ones you hold yourself; the withdrawals can be stretch out across your lifetime, rather than taking them as a lump sum.
14. What are the advantages of lifetime distributions over a lump sum withdrawal?
A. The advantages of stretching out inherited IRA distributions over taking a lump sum is you have a chance to postpone the inheritance tax and you lengthen the time that tax-free earnings accrue.
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