Amy Rose Herrick, chartered financial consultant and local author offers the following consumer tip for surviving a shaky economy:
Inheriting money isn't always as easy as it looks. When the money is in a retirement plan, tax considerations make the financial planning tricky. This is becoming more of an issue as the World War II generation dies, leaving their retirement plans to baby-boomer children. In many cases these retirement plans -- the product of decades of saving -- are among the family's largest assets.
If you inherit a retirement account:
- With a traditional IRA, the first thing you need to check is whether the deceased has taken out the required minimum distribution, which must be withdrawn every year, starting April 1 of the year following the year the account owner reaches 70.5 years of age. If not, the beneficiaries must withdraw this money, according to the money management firm T. Rowe Price, which has published a guide to IRA inheritance rules. (The minimum annual distribution is determined by a formula that considers the value of the account and the life expectancy of the owner.)
- The second thing you should check is to determine if there are any nondeductible contributions in the account. Tax returns are helpful here. This is important. If there are and you don't notice it, these dollars have been taxed twice, once when deposited and the second time when withdrawn.
