A:

If you inherited an IRA from someone who was not your spouse at the time he/she died, the amounts that you receive as a distribution from the IRA will never be subject to any early-distribution penalties. However, amounts you receive will be treated as ordinary income (for you) and may be subject to income tax. The exception regarding distributions used to purchase a first-time home only applies to those IRAs you established and contributed to yourself, not those you inherited. (For more details on the exception for the first-time home purchase, see the "Distributions" section of our IRA tutorial.)

Caution: Because your father died after age 70 ½ and started distributions, you are required each year to distribute a minimum amount from the IRA you inherited from him. This amount is referred to as a required minimum distribution and is calculated using your age, beginning the year after the year your father died. Your IRA custodian should be able to assist you with this calculation. If you fail to distribute at least the minimum amount each year, you could owe the IRS 50% of the amount you failed to distribute.

Note: The rules vary for spouse beneficiaries.

This question was answered by Denise Appleby
(Contact Denise)

RELATED FAQS
  1. Am I losing the right to collect spousal Social Security benefits before I collect ...

    The short answer is yes, if you haven't reached age 62 by December 31, 2015. The Bipartisan Budget Act of 2015 disrupted ... Read Full Answer >>
  2. How do I file taxes for income from foreign sources?

    If you are a U.S. citizen or resident alien, your income (except for amounts exempt under federal law), including that which ... Read Full Answer >>
  3. How Long Should I Keep My Tax Records?

    The Internal Revenue Service (IRS) has some hard and fast rules regarding how long taxpayers should keep their tax records. As ... Read Full Answer >>
  4. Where else can I save for retirement after I max out my Roth IRA?

    With uncertainty about the sustainability of Social Security benefits for future retirees, a lot of responsibility for saving ... Read Full Answer >>
  5. Are estate planning fees tax deductible?

    Estate planning fees may be tax deductible, but only if certain conditions have been met. Internal Revenue Service (IRS) ... Read Full Answer >>
  6. Can personal loans be included in bankruptcy?

    Personal loans from friends, family and employers fall under common categories of debt that can be discharged in the case ... Read Full Answer >>
Related Articles
  1. Retirement

    Early Out: A Realistic Plan to Retire Younger

    If you want to retire ahead of schedule, it'll take some extra planning.
  2. Estate Planning

    Before You Agree to Be an Executor: Know This

    How to avoid 5 surprising hazards of being the executor of an estate.
  3. Mutual Funds & ETFs

    Which Fund Share Class is Best for Retirement?

    Mutual funds are a popular investment for retirement. Here's how to choose the best share class when investing in them.
  4. Retirement

    6 Robo-Advisors That Require Little to Start

    There are many well-regarded robo-advisor options that come with minimum investment amounts. Here are snapshots of a handful of them.
  5. Credit & Loans

    New Rules May Make It Easier to Get a Mortgage

    Fannie Mae and Freddie Mac have come to terms with lenders on how to solve mortgage disputes. This could be good news for people with lower credit ratings.
  6. Saving and Spending

    What Baby Boomers Need to Know About IRA RMDs

    Mandatory minimum distributions from traditional IRAs and qualified plans cannot be avoided. But there are several ways to minimize their impact.
  7. Your Clients

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  8. Retirement

    Roth IRAs Tutorial

    This comprehensive guide goes through what a Roth IRA is and how to set one up, contribute to it and withdraw from it.
  9. Term

    How Traditional IRAs Work

    A traditional IRA is a tax-advantaged retirement account that includes stocks, bonds, mutual funds and other investments.
  10. Credit & Loans

    Don't Get Overcharged for Your Mortgage

    Don't pay more for a mortgage than necessary. Here’s a quick look at the different categories and how to be sure you're getting the best deal.
RELATED TERMS
  1. Fiduciary

    A fiduciary is a person who acts on behalf of another person, ...
  2. Sequence Risk

    The risk of receiving lower or negative returns early in a period ...
  3. Backdoor Roth IRA

    A method that taxpayers can use to place retirement savings in ...
  4. Taxes

    An involuntary fee levied on corporations or individuals that ...
  5. W-2 Form

    The W-2 form reports an employee's annual wages and the amount ...
  6. Sales Tax

    A consumption tax imposed by the government on the sale of goods ...
Trading Center