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Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29558
Experience:  Taxes, Immigration, Labor Relations
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If I (age 40) inherit my fathers retirement through his employer

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If I (age 40) inherit my father's retirement through his employer (invested in stocks) how can I get to it with the least tax consequence? Can I roll it over and/or cash in part of it? My father had retired and elected to take 5 annual payments but I am not sure if he lived to receive the first payment, would that election on his part change anything on my part?

Lev :

Hi and welcome to our site!
Sorry for the loss of your father.
We need to know the age of your father when he passed away. If he was older than 70 1/2 - and already started required minimum distributions - you might need to continue with these distributions.
Otherwise you have following options:
-- taking the full lump sum distribution.
-- starting periodic distribution based on your age and life expectancy.
-- taking distribution within 5 years.

Lev :

You may not treat that inherited retirement plan as your own (that option is only allowed to spouses) - and may not roll it over to your own IRA or your own retirement plan.
However - you may open co-called "inherited IRA" account and roll funds over to that account - and manage distributions according to rules above.
Generally - if you take large distributions in any single year - that might push you into higher tax brackets - so you might want to plan distributions wisely - and spread it over several years.


Father was not 70.5; so can I take some cash and pay taxes and roll over the remainder?

Lev :

If your father was below 70 1/2 - that means - the death occurred before required beginning date. The entire account must be distributed by the end of the fifth year following the year of the owner's death. No distribution is required for any year before that fifth year.
You may decide which amount to distribute in any of these years.

Lev :

You might need to contact the administrator of that retirement account and verify if they allow such distributions. All retirement accounts are different and have different distributions rules.
If that do not allow such treatment - you may open a specifically titles "inherited IRA" - the transfer all funds into that account. That transfer will be not taxable and will be treated as rollover if directly transferred.
Each year you will take money out of that account - the distributed amount will be reported as your taxable income in that year.

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