Plan carefully if you inherit an IRA account

The loss of a loved one often comes with plenty of headaches, particularly when it comes to handling the estate. Complex tax laws can make it difficult to understand the best approach to handling assets, even when the options appear to be straightforward. It's important that you do your homework and understand the full effects of whatever decisions you make, and this can require help from an estate planning professional.

This applies to individuals who inherit an individual retirement account, or IRA. Different variables can influence what the best decision for your situation is. If you inherit a traditional IRA from a spouse, for example, you can designate yourself as the IRA's new owner or roll the funds into your own IRA. You can also treat yourself as the account's beneficiary. If your inherited IRA is not from a spouse, then you can't claim it as your own, but you can still take the account as one lump sum or roll the funds into your own account.

How you handle the account may depend on the age of the original owner when he or she died. If the owner was more than 70.5 years old, minimum distributions are required to be made or else a hefty 50 percent tax can be levied on some of the funds. This is an important consideration when you are the beneficiary of the account.

Florida estate planning attorneys note that surviving spouses stand to receive the greatest flexibility in how they handle the IRA of a deceased individual by way of waived penalties and tax advantages. For the children of parents who are deceased, the issues can become more complicated and require the help of a tax advisor.

Source: postcrescent.com "Boomers: If you inherit an IRA, do your tax homework" Nov. 4, 2011