Saturday, May 04, 2002

Savvy Strategies

Transfer IRA if it's inherited

        Problem: My father just passed away and I am the beneficiary of his IRA. What should I do with it?

        Strategy: Look into a trustee-to-trustee transfer.

        Mike Jarrold-Grapes of Niehaus Financial Services says that because you are a nonspouse beneficiary, you cannot treat the inherited IRA as your own. You cannot contribute to it, so a transfer could provide you with better investment options than those available with the current trustee.

        Withdrawals from the IRA will be taxable to you as ordinary income. You cannot defer payment forever, even if you do not need the money. The IRS dictates you must choose between two distribution options.

        One option is to withdraw the entire balance of the inherited IRA by the end of the fifth year after the year of your father's death. Taking withdrawals this way may cause you to be in a higher tax bracket and leave you ineligible for a Roth IRA or certain tax credits.

        The other option is to withdraw from the IRA based on your single life expectancy, determined by an IRS table. Because your life expectancy divisor and the value of your IRA change, you will need to figure your required distribution each year. This method results in the lowest withdrawal allowed, minimizing taxes and stretching the life of the IRA. To take withdrawals this way, you must begin by December 31 of the year after your father is deceased.

        Readers: Consider Savvy Strategies as general information only and seek the help of professionals because circumstances might vary.

        Planners: Share your unique tips with Enquirer readers. Send your Savvy Strategies to Amy Higgins, 312 Elm St., Cincinnati 45202 or e-mail


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