How Heirs Can Maximize an Inherited IRA
An IRA is a powerful vehicle to build a nest egg to fund your golden years. The account allows the money stashed inside to grow free from tax, which can turbocharge growth. With years and years of tax-advantaged, compounded growth, often there will still be money in the account when the owner dies. That money, when passed to heirs, can continue to grow in an IRA, potentially for decades into the future.
While bequeathing an IRA is pretty simple, inheriting an IRA can be a little more complicated. To make the most of inherited IRAs, it's critical that heirs understand the rules to follow when they receive the money--and the deadlines that must be met if they want to stretch the account for years to come. All heirs aren't the same: Spouses and nonspouses have two different sets of rules, and we'll break the differences down.
But first and foremost, there is a key step that IRA owners need to take to give their heirs the most options for the future: Name the heirs on the account's beneficiary form. Spouses likely would eventually inherit an IRA anyway, but it's a simple matter to make it clear by designating a spouse on the form. For nonspouse IRA heirs, being named on the form is critical because that designation allows them to stretch out distributions from the
