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The IRS recently announced that it was stepping up its enforcement of penalties assessed against taxpayers who make mistakes with their IRAs. If you inherit an IRA, you need to take specific actions within a certain timeframe or risk harsh penalties, so consulting with an Irvine estate planning attorney about your inherited IRA options is highly recommended.

Spouse rules. When surviving spouses inherit a traditional IRA, they can treat it as their own and not take a distribution until age 70 1/2. If a surviving spouse inherits a Roth IRA, no distributions are required – but if distributions are made before the surviving spouse reaches the age of 59 ½, he or she would have to pay a 10 percent early withdrawal penalty.

Non-spouse rules. Anyone inheriting an IRA who is not the spouse of the deceased has two options: (1) stretch option, to take distributions over their life expectancy; or (2) liquidation within five years of the original owner’s death. The stretch option allows the funds to be sheltered from tax; if it’s a Roth IRA, the earnings accumulate tax-free. Opting for the 5-year rule can subject you to a large income tax bill, unless it’s a Roth IRA that was set up more than five years before the original owner’s death.

The Flanigan Law Group provides Southern California residents with personal attention for estate planning, administration and litigation legal services. When disputes between families, arise, they are very successful in resolving legal estate issues quickly and efficiently while preserving financial and emotional resources. Contact the Flanigan Law Group at 949-450-0042.