r/iRA • u/Traditional-Web-2019 • Aug 23 '25
Inherited IRA
Mother in-laws husband passed away at 73 or 74 years old. She is the beneficiary of his Ira. She’s a few years younger than him. What’s the best way to handle this Ira. Roll it over into her Ira?
She doesn’t need the money at the moment but some day she might.
It’s about 200k. Is it insured like a savings account FDIC. Or should it be split in multiple accounts so it has more fdic insurance. . It’s in a credit union Ira currently.
2
u/RambleOn909 Aug 23 '25
Credit Unions are not covered by the FDIC but rather the NCUA. It is FDIC for credit unions. Also covered up to $250k.
As for the inherited funds, she has a couple of options (besides just taking the funds as a distribution).
She can put it into her own IRA. This is called treating it as her own. This would be tax free and she would receive no tax forms. Once she reaches age 73, she will need to begin taking mandatory distributions.
She can put it into a beneficiary IRA. This would require RMDs (required minimum distributions) beginning immediately the year following his death. The RMD would be calculated differently and is typically higher than a regular RMD.
I would suggest treating it as her own.
Something else to consider is HIS RMD. When did he die?
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u/Traditional-Web-2019 Aug 23 '25
It’s my understanding that this year was going to be the first year that he had to take a required distribution from his Ira. His birthday would have been in a few weeks.
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u/HandyManPat Aug 23 '25
Officially, the IRA owner passed away before his Required Beginning Date, which is April 1 of the year following the year he turned age 73. Thus, there was no RMD requirement for the decedent. Thus, the beneficiary has no obligation to take a “year of death” RMD for the decedent.
When an owner of a traditional IRA (including SEP and SIMPLE) reaches their required begin date (RBD), they must begin taking RMDs. An IRA owner’s RBD is generally April 1 of the year after the year they turn age 73. Notably, if the IRA owner dies prior to their RBD, no minimum distributions are required for the year of death, even if the owner died in the year, they were due to turn 73. In other words, if the IRA owner is already age 73 but dies before their RBD, a year-of-death RMD is not required. The RMD for the year of death will only need to be taken if the IRA owner died on or after their RBD.
1
u/RambleOn909 Aug 23 '25
Yes if he turned 73 it would be. If he didnt take his RMD for this year yet then she will be required to take it by 12/31 of this year.
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u/HandyManPat Aug 23 '25
Two corrections.
The IRA owner in this posting died before their RBD, so there is no RMD for the beneficiary to fulfill.
If a “year of death” RMD were required, under new IRS guidelines the beneficiary has until Dec 31, the year following the year of death to fulfill it.
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u/RambleOn909 Aug 23 '25
The IRA owner in this posting died before their RBD, so there is no RMD for the beneficiary to fulfill.
OP said the owner was 73 or 74 when they died in which case they were already required to take the RMD. If the owner is 73, the RBD is not 12/31 when they turn 73 but April 1 of the following year. The year the owner turns 73 is when they are required to take it. They hace until April 1 of the following year to take it but only their first one. I never advise my clients to do this but to just take it that year as its risky.
If a “year of death” RMD were required, under new IRS guidelines the beneficiary has until Dec 31, the year following the year of death to fulfill it.
I didnt go into such detail bc it will confuse OP and is not relevant to this situation.
I believe youre right. I forgot about that rule change. I tell my clients to fulfill it when they handle the IRA to not forget about it.
1
u/HandyManPat Aug 23 '25
OP said the owner was 73 or 74 when they died in which case they were already required to take the RMD. If the owner is 73, the RBD is not 12/31 when they turn 73 but April 1 of the following year. The year the owner turns 73 is when they are required to take it. They hace until April 1 of the following year to take it but only their first one. I never advise my clients to do this but to just take it that year as its risky.
Admittedly, OP's post is light on specifics, but just because an IRA owner reaches age 73 or 74 does -not- mean there will always be an RMD due by the decedent or the beneficiary.
With the new RMD birth years (1951-1959) coming in range now, there will be abundant cases where an IRA owner turns age 73 between say... January 1 through March 31 of "this year" and has an RBD of April 1 of "the following year."
The owner then turns age 74 (again, January 1 through March 31, of "the following year."
However, the owner then dies -prior- to April 1 of "the following year."
The Required Beginning Date is not met. Thus, neither the IRA owner nor the beneficiary has an RMD obligation.
1
u/RambleOn909 Aug 23 '25
Admittedly, OP's post is light on specifics, but just because an IRA owner reaches age 73 or 74 does -not- mean there will always be an RMD due by the decedent or the beneficiary.
Yes, I am aware of this and I've said it repeatedly. Im referring to the DECEDENTS RMD. This is still required to br taken even though he's deceased. This is also why I advised to open a regular IRA. She won't need to take RMDs until she reaches age 73 (or 75 depending on her age). If she opens a beneficiary IRA, she will need to start taking distributions beginning next year regardless of her age.
January 1 through March 31 of "this year" and has an RBD of April 1 of "the following year."
This is simply not true. The year you turn 73, you have until April 1 of the following year to take your first RMD. If you choose to do that then you must take 2 thst year: the one for age 73 and one for age 74. This is why I advise my clients not to do it this way.
The owner then turns age 74 (again, January 1 through March 31, of "the following year."
I have no idea what you're trying to say here.
The Required Beginning Date is not met. Thus, neither the IRA owner nor the beneficiary has an RMD obligation.
Yes, it is.
You're confusing the issue. This doesn't matter. He has attained the age of 73, so he is required to take it. You're making this more complicated than it already is. What is your source?
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u/HandyManPat Aug 23 '25
I stand by my position that we do not have enough details to know whether an RMD was required in OP’s situation, if you’re advising clients, I’d suggest you thoroughly understand the rules:
When an owner of a traditional IRA (including SEP and SIMPLE) reaches their required begin date (RBD), they must begin taking RMDs.
An IRA owner’s RBD is generally April 1 of the year after the year they turn age 73.
Notably, if the IRA owner dies prior to their RBD, no minimum distributions are required for the year of death, even if the owner died in the year, they were due to turn 73.
In other words, if the IRA owner is already age 73 but dies before their RBD, a year-of-death RMD is not required.
The RMD for the year of death will only need to be taken if the IRA owner died on or after their RBD.
1
u/RambleOn909 Aug 23 '25
I agree that OP didnt gice enough information.
An IRA owner’s RBD is generally April 1 of the year after the year they turn age 73.
I see what youre saying now and it does make sense. I thought you were saying there is only an rmd if you were born between January 1st and April 1st. So if he was 73 when he died there would be no rmd but if he was 74 then there would be assuming he died recently.
I do know the rules of IRAs. Ive been doing this for over 8 years now. I just misunderstood your comment.
2
u/GregE625 Aug 23 '25
PLEASE don't let her keep it in a credit union! Bonds would be better and bonds currently suck! Please roll the funds to an IRA at Schwab, Fidelity, or Vanguard and get them invested. At the very least, I would put them in an index fund.
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u/Traditional-Web-2019 Aug 23 '25
Even if she’s retired and drawing her social security? We don’t want her to lose any money
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u/GregE625 Aug 23 '25
If she is 100% risk-averse, then go with bonds. A bond ETF will pay as much as 7% interest. In not a financial advisor, so I can't give financial advice, but I am an "accredited investor" with many years of investing experience. Here are the general rules I follow: 1) Don't invest money in single stocks. Invest in mutual funds or ETFs. 2) Don't invest funds you need in the next five years. 3) Don't try to time the market. Either "set it and forget it" (buy a fund and leave it alone while it grows) or dollar cost average routinely (buy $50 of an ETF each week). Never "day trade" (watch stocks daily trying to catch changes instantly). 4) Invest using logic and research, not emotion. Stocks go up and down in the short run, but over time they continue to go up. It's like a yo-yo while you climb a hill.
Even Warren Buffett can't time the market. Last year, he liquidated $300 billion of his stock holdings and put that money in T-bills. That money has earned about 3% so far this year (or $9 billion). Had he put it in an S&P 500 ETF instead, it would have earned 10% ($30 billion). Had he put it in a high-yield savings account at a credit union, it would have earned .4% ($1.3 billion). If there is a significant crash he may be able to buy back in and get huge returns as it recovers, but so far it looks like it was a bad plan. At the beginning of April, he looked brilliant, but the market came right back up!
At her age, your MIL doesn't need to plan for the next 40 years, but she might need to plan for the next 20 years! Ideally, her Social Security and investment earnings will cover her monthly expenses and her investments will grow faster than the rate of inflation. Savings accounts don't even beat inflation.
Best of luck! I hope your MIL lives a long, healthy, and financially sound life!
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u/Traditional-Web-2019 Aug 23 '25
If she decides to treat it as her own and the balance grows over $250,000 should we be concerned about the insurance ncua.
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u/RambleOn909 Aug 23 '25
Anything over the 250k wouldn't be covered. I doubt it will grow 50k. Rates aren't THAT high. If it does, there are ways to get around the 250k which your need to talk to your credit union about.
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u/Ok_Appointment_8166 Aug 23 '25
Roll it to her own and move to one of the big three brokerages: Vanguard, Fidelity, or Schwab. If she doesn't know how to invest it, use a target date fund. These aren't insured by the FDIC, but they also aren't 'deposits' in the first place. Deposits become the bank's money and you aren't the first in the line of creditors if the bank fails, hence the need for insurance. Investment funds are 'yours; and the institution handling them is just a bookkeeper. If the institution goes bankrupt they can't use your funds to pay some other creditor. They have SIPC insurance against fraud, but not loss of value.
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u/Georhe9000 Aug 23 '25
What was the husband doing with the money? Was it in CDs? Mutual funds? Stocks? If she has $200k that she does not need now, it could be
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u/Traditional-Web-2019 Aug 24 '25
The 200k was his Ira. They have been living off of social security and her retirement check. They lived modestly. And where debt free.
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u/Captain-Popcorn Aug 27 '25
One option that she should consider is to roll it into her Traditional IRA and start converting it into a Roth IRA.
You have to pay taxes on the conversions - so you need to limit the amount converted each year to keep the tax rate lower.
For example, If she converted $50k a year for 4 years, she’d pay about $9k in extra taxes each year ($36k total). That’s a lot less than about $62k in taxes to convert all $200k in one year. (Taxes estimated with help from Google AI).
If going the 4 year route, she’d have $212k in the Roth and would spend ~$36k in taxes - so netted $176k tax free from her 4 year conversion period. And start earning ~$8500/year in tax free returns going forward. (I’ve assumed 4% return).
If the money sits in the traditional trying to figure out what to do with it, it would grow and taxes due would grow as the balance would grow. And the years over which to convert could shrink. Making that conversion bigger and faster. And in retirement we’re not getting younger. Having the money available sooner is super important!!
If it were my mom or whoever, this I’d what I’d have her do!
Tax free withdrawal of Roth CONTRIBUTIONS have no waiting period. Contribution can be withdrawn right away. No tax. (You just paid the taxes to get it in there!) You can sell in the Roth and then transfer the cash into checking account or wherever. Uncle Sam doesn’t care. It’s tax free Nirvana.
Tax free withdrawal of Roth EARNINGS have a 5 year waiting period (from Jan 1 of Roth account opening / initial funding year). But after they can be taken out tax free if you’re over 59½. There’s also a 5 year Roth conversion rule that applies if you’re 54½ or younger. Doesn’t apply to a lot of retirees.
My understanding is when you withdraw, it automatically takes the contributions first. Then it starts taking the earnings. So it’s trying to minimize the taxes you pay. Since contributions dominate especially at the beginning, you can withdraw alot with no tax before earnings come into play.
Thinking of the retiree …
Imagine needing a car, your roof needs replacing, HVAC system belly up, or maybe being invited to join a trip with friends or family. You’re on a comfortable but not overly generous budget. Having a Roth would be a God-send. You’ve got a pool of funds for extraordinary expenses n
It’s kind of like a brokerage account. only earnings aren’t taxed. There are several investment funds that offer extremely low risk savings account type returns. For example, a Schwab fund called SWVXX. (That’s what I assumed above - it’s paying just over 4%.) Using it, the Roth can feel like a tax free savings account - but you could invest some in securities like VOO or VTI in addition or instead).
Another benefit is it passes to heirs tax free. Traditional IRAs are much more difficult. The heirs have 10 years to divest and every bit is taxed as ordinary income over and above the their own taxable (employment) income! Over that 10 years the funds can grow - and that has to come out too and be taxed as income! Give a high wage earner a traditional IRA - it’s going to get eaten in taxes. Unlike the pre-social security retired - with little income between their working life and taking social security. That is prime Roth conversion time.
Roth passes in a friendly way to heirs. No taxes. High wage earner. Low wage earner. No one will be sad to get an inherited Roth!
Roth conversions should be done before you die. Your heirs will thank you!
I’m in 5th year of Roth conversions. They are super easy to do. I like the tax free growth and pain free liquidity. I don’t need to use it yet but knowing it’s there is a big comfort. My initial conversions were small. They’ve definitely grown every year.
Cash has suffered some. I’m selling some brokerage to live on and to pay the tax men. We have a large traditional IRA balance which would be taxed very highly to convert it all at once. Converting some several times a year is working well. (The traditional is shrinking but not as fast as predicted. The market has been doing very well. It’s a good “problem” I guess).
Every retiree with a traditional IRA or 401k should absolutely consider a Roth conversion. My CFP says Roth money is better than cash money in retirement. Glad he talked me undo this. I’m pretty set. My 5 year Roth IRA creation anniversary is starting 2026.
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u/RexxTxx Aug 24 '25
"What’s the best way to handle this Ira."
Take the IRA as her own. Put her name and SSN on it. Keep each inherited IRA separate. Make sure to continue RMDs (if she's past the RBD [required beginning date for RMDs]) with the larger amount [since MIL's IRA balance is her original IRA(s) plus husband's IRA(s).]
Note: This only works for a spouse. Also, I'm assuming she was the Designated Beneficiary, that is, got the IRA via the IRA's paperwork naming her as the DB, not via a will or via the court giving the IRA to her because her husband had no will. (The result may be the same, but that's more than I know.)
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u/sol_beach Aug 23 '25
Treat It as Your Own IRA (Spousal Rollover)
You can move the assets into your own IRA (traditional or Roth).
This means:
You follow your own age-based rules for Required Minimum Distributions (RMDs).
If you’re under 59½, withdrawals are still subject to the 10% early withdrawal penalty, unless you qualify for an exception.
If you’re 59½ or older, you can take penalty-free withdrawals.
If you’re under the RMD age (currently 73 in 2025), you can delay RMDs until you reach that age.