And Then You Were a Beneficiary

Inherited IRA

And Then You Were a Beneficiary

Losing a loved one takes a toll on us all — emotionally, physically, and mentally. As if there was not enough to work through during the grieving process, there inevitably are details to work out financially concerning the deceased.

One item you might find yourself on the receiving end of is your deceased loved one’s individual retirement arrangement (IRA) account. As more and more people accumulate assets in IRAs, this will likely become a more common situation over time.

The rules, regulations, stipulations, and requirements of receiving and managing an Inherited IRA — aka Beneficiary IRA — are numerous and complicated. A small degree of mismanagement could result in unnecessary taxes and tax penalties.

Basics to help you navigate your Inherited IRA

1. Spouse or not?
If you receive an IRA from your spouse, your options are much more flexible than if you receive an IRA from a non-spouse.

2. How old was the deceased?
The age at which the original IRA owner dies plays a role in determining available options. The age of IRA demarcation is 70.5, which is the age at which the original owner would have been subject to required minimum distributions (RMDs).

3. The “default” option.
No matter your relationship to the deceased or their age, one option that always exists is to have their IRA distributed to you in cash. The major downside to this approach is the huge tax bill you’ll be faced with the following April.

Distributions from IRAs due to death avoid the 10% premature distribution penalty tax, regardless of your or the original owner’s age, but the amount you add to your regular taxable income could be quite substantial. Plus, you lose tax-deferred growth treatment on that money going forward.

Ready to learn more about inheriting money?

Stay tuned for our next blog: Are You Inheriting Money? Don’t Miss These Steps.

Other options as a spouse

As a spouse beneficiary, you have two additional options instead of taking a lump sum:

1. Roll it over to your own IRA.
As a spouse, you have the option of rolling your deceased spouse’s IRA into your own IRA account. The entire account is treated as if it were always your own IRA. This is unique to spouse beneficiaries.

2. Retitle to a Beneficiary IRA.
If your deceased spouse was under 70.5, you would begin required minimum distributions from the Beneficiary IRA in the year following your spouse’s death or at the time your spouse would have turned 70.5, whichever is later.

If your deceased spouse had already begun her or his own RMDs, you are required to take RMDs from the account, based on your life expectancy, by the last day of the year following your spouse’s death. You will also need to take an RMD for your deceased spouse in the year of her or his death if she or he hadn’t already done so.

Other options as a non-spouse 

As a non-spouse beneficiary, you also have a couple of options to consider in addition to a lump-sum distribution:

1. The five-year rule.
If the original owner had not begun her or his own RMDs, you have the option of waiting up to five years after the original owner’s death to take distributions from the Beneficiary IRA as a non-spouse beneficiary. However, at the end of the five-year period, the entire account must be distributed.

2. Take RMDs from the account.
Regardless of whether the original owner had begun RMDs or not, the other option for a non-spouse beneficiary is to begin taking annual distributions. These are based on your life expectancy, and you must start them by the last day of the year following the original owner’s death. You will also need to take an RMD for the original owner in the year of her or his death if she or he were required to but had not done so already.

With so many options, it’s no wonder many who inherit IRAs turn to their financial planners for advice. And because they receive these funds at difficult times, it’s often comforting for beneficiaries to have someone to rely on. With a little help from a financial planner, those who receive Inherited IRAs from loved ones can make the most of them.

If you have IRA or other financial planning questions, just ask!

Interested in meeting with us to begin the path to your financial future? We’re accepting new clients, and you can start with a no-cost web or in-person consultation.

Jason Speciner
jason@fpfoco.com

Jason Speciner is a CERTIFIED FINANCIAL PLANNER™ professional, an Enrolled Agent, and the founder of fee-only firm Financial Planning Fort Collins. He is also a member of the National Association of Personal Financial Advisors (NAPFA), Financial Planning Association (FPA), and XY Planning Network. Since 2004, he has served clients of all ages and backgrounds with unique experience working with members of generations X and Y. To learn more, check out Jason's blogs and see the media he's been featured in.



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$0 - $249,999(See Invest:FOCO)
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
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$3,000,000 - $3,999,999$15,000
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There is a minimum initial investment of $100,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities.

Minimums do not apply to inStream proactive financial planning as a stand-alone service.
ANNUAL FEE
Assets Under ManagementFee as a % of AUM
$100,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%

inStream proactive financial planning as a stand-alone service: $1,000/year or $100/month
MINIMUM ACCOUNT SIZE
There is a minimum initial investment of $100,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities.

Minimums do not apply to inStream proactive financial planning as a stand-alone service.
ANNUAL FEE
Assets Under ManagementFee as a % of AUM
$100,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%

inStream proactive financial planning as a stand-alone service: $1,000/year or $100/month
MINIMUM ACCOUNT SIZE
The minimum initial investment for the Invest:FOCO platform is only $5,000 per account. This minimum can be met via transfer of an existing account or with new funds. Invest:FOCO is currently available for Individual, Joint, Traditional IRA, and Roth IRA registrations.
ANNUAL FEE
0.65% of assets under management ($65 per $10,000 managed)
MINIMUM ACCOUNT SIZE
The minimum initial investment for the Invest:FOCO platform is only $5,000 per account. This minimum can be met via transfer of an existing account or with new funds.
ANNUAL FEE
0.65% of assets under management ($65 per $10,000 managed)
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Invest:FOCO clients are eligible for a 10% discount on income tax preparation services offered through Fort Collins Tax Service, LLC. This discount applies to the base cost for return preparation as well as Schedules B & D. More details can be found here.
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There are no minimums when utilizing inStream proactive financial planning as a stand-alone service.

When investment management services are desired, there is a minimum initial investment of $125,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. A client household may generally include accounts for a head of household, a significant other, dependents, and any controlled organizations or entities. inStream proactive financial planning is then included at no additional cost.
ANNUAL FEE
inStream proactive financial planning as a stand-alone service: $1,250/year or $125/month

Assets Under ManagementFee as a % of AUM
$125,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%
TAX PREPARATION
Strategy:FOCO clients are eligible for a 50% or 100% discount on income tax preparation services offered through Fort Collins Tax Service, LLC. This discount applies to the base cost for return preparation as well as Schedules B & D. More details can be found here.
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Stay in the loop with our Monthly Economic Update. It's a great way to catch up on the things effecting your financial plan in an easy to read and relatable format.

We promise to only use your name and email address for sending our Monthly Economic Update. We will not sell, rent, lease, loan, or use your name or email address for any other purpose, internally or externally. You can easily unsubscribe at any time.
MINIMUM ACCOUNT SIZE
Minimums do not apply to always-on, real-time financial planning as a stand-alone service.

For investment management services there is a minimum initial investment of $125,000 per Strategy:FOCO client household. This minimum can be met via transfer of existing accounts or with new funds. Investment management fees are generally debited from the accounts to which they apply. Financial planning services are included for Strategy:FOCO investment management clients at no additional charge.
ANNUAL FEE
Always-on, real-time financial planning as a stand-alone service:  $125/month or $1,250/year

Assets Under ManagementFee as a % of AUM
$125,000 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 or more0.50%
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FINANCIAL PLANNING
Financial planning services are ongoing, and include unlimited phone, email, web and in-person meeting and consultation time. Pricing is based on the unique circumstances of each client situation. Generally, there is a one-time plan development fee ranging from $500 - $2,000 and a monthly fee of $150 - $500; cancel anytime. Clients utilizing investment management services with portfolios of $500,000 or more will typically receive financial planning services for no additional fee.
INVESTMENT MANAGEMENT
Assets Under Management (AUM)Annual fee as % of AUM or flat-dollar
$0 - $249,9991.00%
$250,000 - $499,9990.90%
$500,000 - $999,9990.80%
$1,000,000 - $1,999,9990.65%
$2,000,000 - $2,999,9990.50%
$3,000,000 - $3,999,999$15,000
$4,000,000 - $4,999,999$20,000
$5,000,000 or more$25,000 + $2,000 per additional $1mm
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Your fee is determined by the complexity of your needs and situation. The primary proxy we use for complexity is your investable net worth, which is generally your total net worth, excluding your primary residence. Your investable net worth includes the value of cash, bonds, stocks, mutual funds, rental real estate, and other business or financial interests. This aligns with the holistic nature of our comprehensive services. You can use the chart below to estimate your fee based on your investable net worth. In some circumstances, your fee may be more than the minimums in the chart below.
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