Can you add money to an inherited IRA? This is a common question among individuals who have inherited an IRA from a loved one. Understanding the rules and regulations surrounding inherited IRAs is crucial to ensure that you manage the account correctly and take advantage of any tax benefits. In this article, we will explore the answer to this question and provide you with valuable information to help you navigate the process.
Inherited IRAs, also known as beneficiary IRAs, are established when an individual passes away and leaves their IRA assets to a designated beneficiary. The primary purpose of an inherited IRA is to allow the beneficiary to continue receiving the tax-deferred growth of the account while adhering to specific withdrawal requirements. However, adding money to an inherited IRA can be a complex issue, and it’s essential to understand the rules that apply.
Adding money to an inherited IRA is generally not permitted.
According to the IRS, you cannot contribute additional funds to an inherited IRA. The value of the inherited IRA is based on the original account holder’s balance at the time of their death, and the assets cannot be replenished. This rule is in place to ensure that the inherited IRA remains a tax-deferred account and to prevent beneficiaries from manipulating the account’s value.
However, there are a few exceptions to this rule. If the original account holder was under the age of 59½ at the time of their death, the beneficiary may be eligible to roll over the inherited IRA into their own IRA. This allows the beneficiary to contribute additional funds to the new IRA, subject to the standard IRA contribution limits. It’s important to note that this option is only available if the original account holder was under the age of 59½, and the beneficiary must roll over the inherited IRA within 60 days of receiving the funds.
Understanding withdrawal requirements is crucial.
Another important aspect to consider when dealing with an inherited IRA is the withdrawal requirements. Beneficiaries must adhere to the IRS’ required minimum distribution (RMD) rules, which dictate how much money must be withdrawn from the inherited IRA each year. The RMD rules vary depending on the type of inherited IRA and the beneficiary’s age.
For example, if the original account holder died before reaching age 72, the beneficiary must begin taking RMDs by the end of the year following the year of death. If the original account holder was over age 72 at the time of death, the beneficiary must start taking RMDs by April 1st of the year following the year of death, and then by December 31st of each subsequent year.
Seek professional advice to ensure compliance.
Navigating the complexities of an inherited IRA can be challenging, and it’s essential to seek professional advice to ensure compliance with the IRS rules and regulations. A financial advisor or tax professional can help you understand the implications of adding money to an inherited IRA and guide you through the process of managing the account correctly.
In conclusion, adding money to an inherited IRA is generally not permitted, but there are exceptions and specific rules to consider. Understanding the withdrawal requirements and seeking professional advice are crucial steps to ensure that you manage the inherited IRA correctly and take advantage of any tax benefits. By doing so, you can honor the memory of the original account holder while securing your financial future.
