inherited ira what are options

[frank]

my sil inherited an ira from her boyfriend at schwab. it has been a year now and it is still in his ira with her as pod. she would like to transfer that money to her own investment account with schwab or vanguard. she has no ira. my question is if she transfers money out of an ira and into a personal investment account with schwab or vanguard, does that become a taxable event? If it does will she actually have to withdraw the funds or just transfer them to the other investment account? the reason for the transfer is to put the funds into her name and out of his account and it is making very little and she would like to change funds to increase her growth. thanks

 

[PaunchyPirate]

She first needs to contact Schwab and have his IRA changed over to an official "Inherited IRA". That will re-title the account into her name and it will be called an "Inherited IRA". This is NOT a taxable event in any way. This simply allows the IRS to change the tracking of eventual taxes related to that account from him to her. This step needs to be done at the same company that he had the account with -- Schwab -- before any consideration to move it somewhere else.

Once she has the Inherited IRA properly registered in HER name, then she can do with it as she pleases. It will always remain an Inherited IRA. It cannot be merged into any other existing IRA and it certainly can't be merged into a non-IRA investment account without paying taxes. When she chooses to withdraw money from that account, she will owe taxes on that withdrawal. But once she owns the account, she can buy and sell anything in it just like any investment account. She will not owe taxes until money is actually withdrawn from the account. So she can sell his investments (without withdrawing the proceeds) and buy the funds that she wishes to use to increase her growth. I believe she MUST withdraw the money from the account within 10 years of the boyfriend's date of death (and pay the taxes due). But there are nuances to the withdrawal clock, so she should research that.

Also, once the Inherited IRA is hers, she can move it to Vanguard if she wishes. As long as she doesn't withdrawal from the account, moving it to Vanguard is also not a taxable event.

 

[COcheesehead]

If the funds are removed from the inherited IRA they will be taxed at her income rate.

 

[OddGuy]

I inherited an IRA in 2025. No withdrawal was required for the initial year of death.

For 2026, I had to withdraw a calculated RMD by 12/31/26.

For next nine years, I will have new RMDs, and the balance must be depleted by the end of the tenth year, 12/31/35 in this case.

Withdrawals are taxed as regular income.

 

[disneysteve]

my sil inherited an ira from her boyfriend at schwab. it has been a year now and it is still in his ira with her as pod. she would like to transfer that money to her own investment account with schwab or vanguard. she has no ira.

She does now.

As others have said, this account needs to be switched to her name, which really should have already happened but so be it. Then she can invest it as she wishes and will need to take required minimum distributions (RMDs) as per relevant tax law. She didn't need to take one last year but definitely needs to do so this year by 12/31.

 

[disneysteve]

IMPORTANT NOTE: She may qualify for an exception to the 10-year rule. As long as she was not more than 10 years younger than her boyfriend at the time of his death, she doesn't need to empty the account within 10 years. Instead she can take RMDs based on her own life expectancy.

 

[SecondCor521]

IMPORTANT NOTE: She may qualify for an exception to the 10-year rule. As long as she was not more than 10 years younger than her boyfriend at the time of his death, she doesn't need to empty the account within 10 years. Instead she can take RMDs based on her own life expectancy.

I think that rule only applies to spouses.

 

[disneysteve]

I think that rule only applies to spouses.

It does not.

Inherited IRA RMD Rules & SECURE Act 2.0 | Vanguard

Learn inherited IRA RMD rules, including SECURE Act 2.0 changes, 10-year distribution rules, Roth IRA requirements, and how beneficiaries must take withdrawals.

investor.vanguard.com

I personally qualified for the same exception when I inherited an IRA from my cousin who died in 2021.

 

[audreyh1]

I think that rule only applies to spouses.

Not correct.

Spouses can have more than 10 years difference and still are an exception to the rule of depleting within 10 years. Everyone else has an exception if they are not more that 10 years younger than their benefactor.

 

[EastWest Gal]

It appears she should be taking RMDs starting this year, based on her own age, which she can stretch based on her own life expectancy, if she was less than 10 years younger than the boyfriend. Since the first RMD must be taken in the year after the deceased person's death, she probably won't be subject to a penalty as long as she does it this year. If she doesn't act, there is a 25% penalty on the entire account.

If I were her, I'd open an inherited IRA at Schwab, since the IRA is at Schwab. Schwab probably just need a copy of the death certificate in addition to her own information to open the account. Presumably she was listed as the beneficiary of the IRA by her late boyfriend, so the process should be quite simple. And Schwab has local brick and mortar offices so she can make an appointment to do it in person if she wishes to do it that way.

Here is the actual form for Schwab, with instructions:

https://content.schwab.com/MARS-files/LPM27474.pdf

If she wants to transfer the inherited IRA to Vanguard at a later date she can do that.