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This could impacthow you should manage your inheritance, as financial expert Suze Orman explained in a recentLinkedIn post.
The 10-Year Rule for Inherited IRAs
The IRS changed its rules for inherited IRAs in 2019.
Before then, youd have to withdraw all of the money from an IRA you inherit within five years.
The new rule gives you 10.
However, theres a notable exception for spouses.
A surviving spouse can treat their inherited IRA as their own.
They can essentially put the account in their name and make withdrawals according to their standard retirement timeline.
There are also exceptions for young people and the disabled or chronically ill. Disabled and chronically ill inheritors dont have withdrawal requirements, either.
Suze Orman shared four key takeaways she believes people should remember when deciding how to use an inherited IRA.
But the money wont be taxed as income just as its not for non-inherited Roth IRAs.
Orman said that differs from a traditional IRA.
Any money you withdraw from one will be counted as taxable income.
If you withdraw enough, it could bump you into a highertax bracketfor the year.
This gives you flexibility to set a withdrawal schedule that matches your financial needs.
Taking advantage of this may be the best way to pay less in taxes on your inherited retirement account.
For example, say you inherit a traditional IRA with $100,000 in it.
Now imagine youre $11,000 in income away from thenext federal tax bracket.
Knowing this, you might decide to withdraw $10,000 annually for the next 10 years.
Doing so could keep you out of a higher tax bracket while still following the IRS rules.
Or it could make sense to withdraw everything you inherit at once.
Maybe the IRA had millions in it.
If so, withdrawing an amount every year could put you in a higher tax bracket every year.
Thats because monthly Medicare premiums are based on income.
The more you earn, the more you pay.
Older adults may want to contact afinancial advisorbefore proceeding.
One could help you come up with an optimized strategy for withdrawals.
Tax rules for estates differ from the ones individuals follow in ways beyond the scope of this article.
You may have ahuge tax bill, but its not something youd ever have to worry about again.
This option can be smart if you plan on retiring soon.
Youll get the income spike out of the way now, before it can influence your Medicare costs.
Youll just have to eat thelarge tax billto make it happen.
Make Equal Withdrawals Over Time
The second option is making equal withdrawals over the IRS 10-year period.
This approach can work when youre trying to avoid higher tax brackets while making withdrawals.
For example, you might withdraw $10,000 this year, but $30,000 next year.
One reason to do this would be timing when your biggest tax bills arrive.
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