Avoid Probate with an Inherited IRA

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Self-directed IRAs not only accrue tax-advantaged or tax-free earnings, they can also be passed down to beneficiaries so that the fruits of your labor aren't lost. Inherited IRAs leave your beneficiaries money and help them avoid the hassle and expenses of transferring the money through probate, at which point the account holdings would be considered a part of your overall estate.

Most trust accounts require probate upon the account owner’s death in order for the beneficiary to access the account’s assets. Probates can be both time-consuming and costly for surviving loved ones, but beneficiaries of an Inherited IRA can avoid the probate process all together. Traditional, SEP, SIMPLE, and Roth IRAs, as well as Solo 401(k) plans, can feature beneficiaries as designated by the account holder. These accounts would become Inherited IRAs when the original account holders pass away and would, as the name implies, be inherited by the beneficiaries.

Inherited accounts will continue to bear the pre-tax or post-tax benefits of the account, though new rules may apply for the inheriting account holders. Non-spouse Inherited IRA holders would need to either take required minimum distributions every year, or they would need to gradually distribute the entire account over the course of the following five years. They are also prohibited from making contributions to, transferring, or rolling inherited holdings unless they are consolidated with holdings from another account that was inherited from the same original account holder.

Spouse Inherited IRA holders, on the other hand, may treat their inherited accounts as their own without any of the aforementioned restrictions or distribution obligations.

In either case, an Inherited IRA can still invest in a wide array of assets, not just bank or brokerage securities. Assets like real estate, precious metals, private equity, and private loans can all continue to earn for an account even after it's inherited. The inheriting beneficiary can decide how to manage these assets for themselves.

Current New Direction Trust Company account holders can update their beneficiaries online or by submitting our Beneficiary Designation Form. Give us a call at 877-742-1270 or send us an e-mail at info@ndtco.com if you have any questions or concerns.

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