How to write an online will

Dear Savvy Senior: What are the rules regarding inherited IRAs? When my mom died this year, I inherited her traditional IRA and would like to know what I need to do to execute it properly. —

Confused Daughter

Dear Confused: I’m very sorry about the loss of your mother. Inheriting an IRA from a parent has a unique set of rules that when followed can help you make the most of the money you inherit and avoid a tax-time surprise.

Many people think they can roll an inherited IRA into their own IRA. If you inherit an IRA from a parent, aunt, uncle, sibling or friend, you cannot roll the account into your own IRA or treat the IRA as your own. You’ll have to transfer your portion of the assets into a new IRA set up and formally named as an inherited IRA.

If your mom’s IRA account has multiple beneficiaries, it can be split into separate accounts for each beneficiary. Splitting an account allows each beneficiary to treat their own inherited portion as if they were the sole beneficiary.

You can set up an inherited IRA with most bank or brokerage firms. However, the easiest option may be to open your inherited IRA with the firm that held your mom’s account.

Due to the Secure Act, which was signed into law in December 2019, most (but not all) IRA beneficiaries must deplete an inherited IRA within 10 years of the account owner’s death. This applies to inherited IRAs if the owner died after Dec. 31, 2019.

There’s no limit on when or how often you withdraw money from the account as long as the account is empty by the end of the 10 years. You can choose to withdraw all of the money at once, leave it sitting there for a decade and then take it all out, or you can withdraw distributions over time. Be aware that with a traditional IRA, each withdrawal will be counted as income and subject to taxes in the year you make the withdrawal.

There are several exceptions to the IRA 10-year rule, including for a surviving spouse, minor child, disabled or chronically ill beneficiary, or a beneficiary who is within 10 years of age of the original IRA owner. These beneficiaries may be able to receive more time to draw down the account and pay the resulting tax bill.

For example, when you inherit an IRA from a spouse, you can transfer the IRA balance into your own account and delay distributions until after you turn age 72.

Minor children must start required minimum distributions from an inherited IRA but don’t become subject to the 10-year rule until they reach the “age of majority,” which is 18 in most states. Disabled and chronically ill beneficiaries and those within 10 years of age of the original account owner have the option to stretch required withdrawals over their lifetime.

As tempting as it might be to cash out an inherited IRA in a lump-sum withdrawal, tread carefully. This option could leave you owing a hefty sum when it’s time to file your taxes. Withdrawals from a traditional IRA generally are taxable as income at your income tax rate.

For some people, it can be a smart tax move to gradually draw down the account over the 10-year period to avoid a large tax bill in a single year and potentially being bumped into a high tax bracket. If you’re approaching retirement, say in five years, you may want to wait to start withdrawing from the account until you are retired and your income drops, which could potentially put you into a lower tax bracket.

Send your senior questions to: Savvy Senior, P.O. Box 5443, Norman, OK 73070, or visit SavvySenior.org. Jim Miller is a contributor to the NBC Today show and author of “The Savvy Senior” book.