Traditional individual retirement accounts (IRAs) became available in 1974 and have been around ever since. This makes your odds of inheriting a traditional IRA pretty good.
Five years ago, the estimated total value of IRAs in the U.S. exceeded $5.6 trillion. With the stock market at record highs, this amount has undoubtedly skyrocketed since.
There’s no secret behind the traditional IRA’s incredible popularity, because it’s tax-advantaged in at least a couple of important ways:
Generally, you claim a tax deduction for the money you put into the traditional IRA.
Your money inside the traditional IRA gets an earnings boost because it grows tax-free, and you don’t pay taxes on the earnings until you take money out of the IRA.
But like many areas of taxation, tricky rules apply to distributions from IRAs.
Even trickier rules apply to an IRA that you inherit. The smallest of mistakes can prove costly. This is especially true if you inherit an IRA from someone other than your spouse.
But as you find in many areas of taxation, you can use a little planning to avoid big costs and turn the rules to your advantage. ... Log in to view full article.