Do You Have To Pay Taxes On An Inherited Retirement Account? What Florida Beneficiaries Need to Know

Inheriting a retirement account from a loved one can be both a challenge and a blessing. The rules for inherited retirement accounts can be complex, and making the wrong move could lead to unnecessary tax burdens.

Whether you’ve inherited a traditional IRA, 401(k), or Roth IRA, understanding how withdrawals are taxed can help you make informed financial decisions and avoid costly mistakes. Florida tax-IRS attorney Ronald Cutler explains the key differences between taxable and tax-free inherited accounts, how recent tax law changes impact beneficiaries, and what steps you should take to protect your financial future.

Inherited Roth vs. Traditional Retirement Accounts: What’s the Tax Difference?

If you inherited a retirement account following the death of a loved one, you need to be aware of the rules regarding distributions and the potential tax impacts. Not all inherited retirement accounts are treated the same by the Internal Revenue Service. Any taxes you owe depend on whether the account is a traditional or Roth retirement plan:

• Roth IRA or Roth 401(k): Taxes were already paid on these accounts, so withdrawals are tax-free as long as the account was open for at least five years before the original owner passed.
• Traditional IRA or 401(k): Since these accounts are funded with pre-tax dollars, withdrawals get taxed as ordinary income. If you inherit one, you may be required to take withdrawals within 10 years, per the SECURE Act, which changed how inherited retirement accounts must be distributed.

For non-spouse beneficiaries who must withdraw all funds within 10 years, it can create a higher tax burden, especially for traditional IRAs and 401(k)s.

What to Do After Inheriting a Retirement Account In Florida

Managing an inherited IRA or 401(k) requires careful financial planning. To avoid unexpected tax consequences, follow these steps:

• Understand Your Withdrawal Timeline: If you’re a non-spouse beneficiary, you may need to withdraw within 10 years to comply with IRS rules.
• Consider Spreading Withdrawals: In a traditional IRA or 401(k), smaller annual withdrawals help you avoid higher tax brackets.
• Consider a Spousal Rollover (If Eligible): If you are the spouse of the account holder, you may be able to roll the funds into your own IRA, delaying required distributions.
• Consult a Florida Tax Attorney: An experienced tax lawyer can help you navigate your options and minimize tax liabilities.

Need Help Managing an Inherited IRA or 401(k)? Contact a Florida Tax Attorney Today

If you have inherited a retirement account, it is important to know your rights regarding distributions and the potential tax implications. Failing to follow IRS rules could lead to unnecessary penalties or higher tax debts.

Florida tax attorney Ronald Cutler is a CPA and former FBI special agent in tax cases. With over 50 years of experience, our office provides clear, compassionate legal guidance to help you understand your options and protect your financial future. To get the answers you need, contact our office today and request a consultation.

Source:

irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary#:~:text=Withdrawals%20of%20contributions%20from%20an,the%20time%20of%20the%20withdrawal.