Individual Retirement Account
Also known as IRA. When a spouse inherits it, new beneficiaries must be named, and you can do these 4 things:
- Keep spouse's IRA
- Move spouse's IRA assets into your own account
- Same as last point but convert IRA into Roth IRA
- Discharge
Now, if:
- Traditional IRA: Contributions may be tax-deductible, and earnings grow tax-deferred.
- Roth IRA: Contributions are made with after-tax dollars, but qualified withdrawals in retirement are tax-free.
Why not put all one's cash into Roth IRA? $7k/year limit [1]. But good thing is, benefits are tax free.
Otherwise, Roth IRAs seem to get 7-10% returns, and seem to be quite advantageous as you pay no taxes upon cashing in. In a system which taxes your income in the first place.
How to move money into an IRA without getting taxed on that money? Yes you can do it - any amount - if you are rolling over from another retirement account. This is called a Roth Conversion [2].
So why doesn't everyone convert their inherited IRA to Roth IRA? Because you get taxed on that. [3]
Uniform Lifetieme Table for RMDs [4]
Qualified Charitable Distributions avoid taxes.
