Inherited IRA from parent at low interest rate

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
compass19
Posts: 11
Joined: Sun Feb 16, 2020 4:45 pm

Inherited IRA from parent at low interest rate

Post by compass19 »

I have an inherited IRA from my father from 2011, not subject to 10 year disbursement rule. I have been taking annual RMDs. The inherited IRA is at the bank my father had his acct in. The principal is around $6000 but it only earns less than $1 per quarter. Besides taking it as a lump sum and paying the taxes, and then parking the funds somewhere else for better return, can I do an inherited IRA-to-my own IRA transfer? When I have looked this up online, I don't think I can. I looked through postings here, but didn't see an answer.
Thanks--
Compass19
User avatar
JoeRetire
Posts: 13813
Joined: Tue Jan 16, 2018 2:44 pm

Re: Inherited IRA from parent at low interest rate

Post by JoeRetire »

compass19 wrote: Thu Sep 22, 2022 10:03 am I have an inherited IRA from my father from 2011, not subject to 10 year disbursement rule. I have been taking annual RMDs. The inherited IRA is at the bank my father had his acct in. The principal is around $6000 but it only earns less than $1 per quarter. Besides taking it as a lump sum and paying the taxes, and then parking the funds somewhere else for better return, can I do an inherited IRA-to-my own IRA transfer? When I have looked this up online, I don't think I can. I looked through postings here, but didn't see an answer.
No. You cannot roll over an IRA inherited from a parent.

But for this small amount, why bother? Take the lump sum and contribute more to your own IRA.
Oh, noooooo! I'm so sorry, it's the moops! The correct answer is 'the moops'.
User avatar
retired@50
Posts: 9141
Joined: Tue Oct 01, 2019 2:36 pm
Location: Living in the U.S.A.

Re: Inherited IRA from parent at low interest rate

Post by retired@50 »

compass19 wrote: Thu Sep 22, 2022 10:03 am I have an inherited IRA from my father from 2011, not subject to 10 year disbursement rule. I have been taking annual RMDs. The inherited IRA is at the bank my father had his acct in. The principal is around $6000 but it only earns less than $1 per quarter. Besides taking it as a lump sum and paying the taxes, and then parking the funds somewhere else for better return, can I do an inherited IRA-to-my own IRA transfer? When I have looked this up online, I don't think I can. I looked through postings here, but didn't see an answer.
Thanks--
Compass19
You aren't allowed to add money from an Inherited IRA to your own "compass19's IRA", but you can create another inherited IRA at Vanguard, Fidelity, Schwab and have the funds transferred to the new inherited IRA, then invest as you see fit.

I suspect you'll need to call someone at your preferred financial custodian to get the new inherited IRA account set up. Then, tell them the details about where the money is currently located, and they will likely be able to fetch it. Otherwise the bank could make out a check and you could send it in.

None of this transferring should be taxable, since you're not trying to withdraw the money, you're only trying to move it. Terms like custodian-to-custodian transfer, or trustee-to-trustee transfer are sometimes used in these situations.

Regards,
This is one person's opinion. Nothing more.
User avatar
Kenkat
Posts: 8362
Joined: Thu Mar 01, 2007 11:18 am
Location: Cincinnati, OH

Re: Inherited IRA from parent at low interest rate

Post by Kenkat »

You can do a direct transfer of an inherited IRA from one custodian to another - i.e., you could move it from the bank to Vanguard or Fidelity, for example. For the relatively small amount of money you are talking about here though, I would probably just cash it out and pay the remaining taxes on it.
User avatar
Stinky
Posts: 10520
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Inherited IRA from parent at low interest rate

Post by Stinky »

Are you currently maxing out your IRA and workplace savings plan (401k, etc)?

If not, increase your contribution to one of those plans by $6,000, and fund it by drawing down the inherited IRA. You’ll have no tax impact, and you’ll be able to move the funds into an account that you like.
Retired life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
User avatar
galawdawg
Posts: 4519
Joined: Thu Dec 14, 2017 12:59 pm
Location: Georgia

Re: Inherited IRA from parent at low interest rate

Post by galawdawg »

Yes, you can do a trustee-to-trustee transfer to move your inherited IRA to an inherited IRA you establish at another brokerage (that is different from a rollover). Whether it is worth the trouble to move it with a balance of only $6,000 is up to you. Even if you transferred it and purchased Treasuries with a yield of four percent (4%), you would only earn $20/mo or so in interest.

As JoeRetire suggested, if you aren't already maxing out your own retirement contributions to an IRA, 401k and/or a Roth, just take the $6k distribution, pay the associated income tax, and use the proceeds to increase your own contributions to tax-advantaged accounts.
mhalley
Posts: 9569
Joined: Tue Nov 20, 2007 6:02 am

Re: Inherited IRA from parent at low interest rate

Post by mhalley »

You can’t roll it over into your own ira, but you can roll it into an inherited ira at your preferred brokerage. The main thing is that it needs to be titled properly.Inherited IRAs must contain the name of the original IRA owner (the deceased) and indicate that the IRA is inherited. For example, John Doe Jr. Beneficiary IRA, John Doe Sr. deceased 6/1/2020. Only the spouse of the deceased can roll over an inherited IRA into their name. With 6 k I would also consider just withdrawing the money then put it into your own roth, again it can’t be rolled over into your own roth.


https://www.schwab.com/ira/inherited-ira
wolf359
Posts: 2848
Joined: Sun Mar 15, 2015 8:47 am

Re: Inherited IRA from parent at low interest rate

Post by wolf359 »

Stinky wrote: Thu Sep 22, 2022 10:13 am Are you currently maxing out your IRA and workplace savings plan (401k, etc)?

If not, increase your contribution to one of those plans by $6,000, and fund it by drawing down the inherited IRA. You’ll have no tax impact, and you’ll be able to move the funds into an account that you like.
When OP draws down the inherited IRA to fund the plan, they have to pay taxes on the amount they withdraw.

OP is not allowed to transfer the funds directly into an account in their own name. The only way to avoid taxes is to keep the inherited IRA, but transfer to a different custodian (brokerage) like Vanguard, Schwab, or Fidelity, that offers more desirable investment options.

That said, the tax impact on $6,000 probably isn't that much in absolute terms. OP might want to just pay it to simplify things.
User avatar
Stinky
Posts: 10520
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Inherited IRA from parent at low interest rate

Post by Stinky »

wolf359 wrote: Thu Sep 22, 2022 10:20 am
Stinky wrote: Thu Sep 22, 2022 10:13 am Are you currently maxing out your IRA and workplace savings plan (401k, etc)?

If not, increase your contribution to one of those plans by $6,000, and fund it by drawing down the inherited IRA. You’ll have no tax impact, and you’ll be able to move the funds into an account that you like.
When OP draws down the inherited IRA to fund the plan, they have to pay taxes on the amount they withdraw.

OP is not allowed to transfer the funds directly into an account in their own name.

That said, the tax impact on $6,000 probably isn't that much.
Of course you’re correct. But that’s not what I said.

I said that OP should increase his personal contributions to IRA/401k, which reduce taxable income. If his increased contributions offset his withdrawal from the inherited IRA, there is no tax impact on OP.
Retired life insurance company financial officer who sincerely believes that ”It’s a GREAT day to be alive!”
wolf359
Posts: 2848
Joined: Sun Mar 15, 2015 8:47 am

Re: Inherited IRA from parent at low interest rate

Post by wolf359 »

Stinky wrote: Thu Sep 22, 2022 10:25 am
wolf359 wrote: Thu Sep 22, 2022 10:20 am
Stinky wrote: Thu Sep 22, 2022 10:13 am Are you currently maxing out your IRA and workplace savings plan (401k, etc)?

If not, increase your contribution to one of those plans by $6,000, and fund it by drawing down the inherited IRA. You’ll have no tax impact, and you’ll be able to move the funds into an account that you like.
When OP draws down the inherited IRA to fund the plan, they have to pay taxes on the amount they withdraw.

OP is not allowed to transfer the funds directly into an account in their own name.

That said, the tax impact on $6,000 probably isn't that much.
Of course you’re correct. But that’s not what I said.

I said that OP should increase his personal contributions to IRA/401k, which reduce taxable income. If his increased contributions offset his withdrawal from the inherited IRA, there is no tax impact on OP.
I see. That's a very subtle distinction, and I missed that.
Post Reply