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If You Inherit an IRA, Is It Taxable?
Inheriting an Individual Retirement Account (IRA) can have a significant impact on your financial situation, making it essential to understand the related tax implications.
Whether you inherit a Traditional or Roth IRA, each comes with unique rules and tax liabilities that require careful management.
Traditional IRA Tax Implications
When you inherit a Traditional IRA, any distributions you take are taxed as ordinary income.
For example, if you’re in the 24% tax bracket, your withdrawals will be taxed at that rate. This is because Traditional IRA contributions are typically made with pre-tax dollars, making the entire withdrawal taxable.
The SECURE Act of 2019 introduced a 10-year withdrawal rule for most non-spouse beneficiaries.
Cashing out an inherited iraThis means the entire account balance must be withdrawn within a decade of the original account holder’s death. For large IRAs, this can create substantial tax liabilities and potentially push beneficiaries into a higher tax bracket.
Spreading withdrawals over the 10 years can help minimize this risk.
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