TAXES AND INHERITING AN IRA
It is possible to will one's IRA to a family member or other chosen beneficiary. On receiving the IRA, the beneficiary is able to make withdrawals right away, but there are considerable tax implications for doing so. In fact, those who take money out of an IRA they have inherited will face similar tax issues to those they would face for taking money from their own retirement accounts.
WITHDRAWAL OPTIONS
Outright - This option means that the beneficiary will remove all of the funds from the IRA account upon receiving control of it. By doing so, the beneficiary will have to report the income from that withdrawal on his or her tax return. From there, the beneficiary will have to pay the highest federal tax rates for that period on that withdrawal, which can be over 30 percent.
Rollover - This option only applies to a surviving spouse. Within 60 days of receiving control of the IRA, the surviving spouse can roll over the IRA into his or her own IRA to add to the funds and in doing so will not encounter any additional taxes.
Anyone who inherits an IRA should consult an estate planning attorney before making any withdrawals. Though there are numerous options with an inherited IRA, beneficiaries need to be cautious about the associated tax implications.