June 14, 2006

Dollars & Sense

Taxing Consequences: What to Do with a Large IRA that Has Been Inherited or Accumulated

At some point you may come into a large sum of money or property as the beneficiary of a deceased IRA holder or from a distribution to you as a retirement plan participant. Understanding the tax consequences may prove helpful.

IRA Beneficiary

As an IRA beneficiary you have several options:

Take a lump-sum distribution of the IRA now. Lump sums from traditional IRAs are generally subject to income tax, except for the amount of nondeductible contributions made to the IRA, while Roth IRA distributions may be free from taxation.

Surviving spouse beneficiaries may treat an IRA received as a beneficiary as his or her own and name new beneficiaries to "stretch" the IRA to subsequent generations.

Non-spouse beneficiaries may take annual required minimum distributions over their own life expectancies and name a beneficiary to "stretch-out" their remaining IRA balance.

Beneficiaries can withdraw the entire IRA balance at any time. Beneficiaries may take more than the minimum required amount from the IRA at any time.

Retirement Plan Lump Sums

When the time comes to decide what to do with your distribution from an employer's retirement plan, you may consider rolling the account balance into an IRA. You may have increased flexibility with your investment options and withdrawals. Be sure to initiate a "direct rollover" of these assets from your employer's retirement plan or mandatory withholding of 20 percent of the distribution may apply for income taxes.

Contact us about receiving an in-depth retirement review. We can also help you with an inherited IRA or a lump-sum retirement plan distribution. Be sure to consult a competent tax professional as well. If you'd like to learn more please call: Michael Pellman, Financial Advisor-Retirement Planning Specialist, Riverhead, NY 11901, 631-284-5213

Investments and services are offered through Morgan Stanley DW Inc., member SIPC.

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