Personal Small Business Corporate & Institutional About Us
The death of a loved one is stressful, and settling final arrangements, including finances, can only make it harder. But knowing how to handle the complex rules for retirement accounts can help lessen the burden.
The rules for inherited IRA and 401(k) retirement accounts can be complex. The first thing you should do if you’re a beneficiary is stop and take a deep breath.
“Complex rules often confuse and frustrate beneficiaries, so sometimes they take the lump sum because it seems to be the easiest solution,” said Lori Rodgers, a senior wealth strategist with PNC Wealth Management®.
“Depending on your financial situation and goals, that could be a mistake, so you need to understand your options,” she said.
“Resist the urge to cash in the complete account if you inherit a retirement account. The tax bite might be large because inherited retirement accounts are taxed at the same rate as ordinary income such as wages,” Rodgers said. “In addition, by not taking the lump sum, the account has the potential to continue to grow on a tax-deferred basis. Over time, this can be a nice complement to your own retirement savings.”
It’s also important to consider your own retirement accounts and how this inherited asset fits into your goals and plan.
If you’re a beneficiary, you need to be aware that there are different rules if the IRA and/or 401(k) plan is coming from your spouse or if it is from another individual such as a parent, a sibling or any other person.
If you inherit a retirement account from your spouse, it’s generally very simple: you can roll that asset into your own IRA and manage and invest it as you would your own retirement account; no distributions are required until you turn age 70 1/2, Rodgers says. But if the account comes from someone other than a spouse, the process can be far more complex.
If you inherit an account under these circumstances, you generally must put the funds into a designated inherited IRA and take required minimum distributions annually based on your life expectancy as determined by IRS-provided tables. Those distributions must begin by December 31, in the year following the death of the owner of the account, Rodgers said.
Most important, as with any estate planning issue, communication is crucial. Work with the appropriate professionals to decide where assets will go after your death, and be sure all beneficiaries are aware of your plans.
“It is critical that retirement account owners keep beneficiaries up-to-date on IRAs or 401(k) plans so that the transfers are smooth,” she said “We recommend that retirement account owners review their entire estate plan at least once a year. A good time to do that is around open enrollment time at your place of employment,” she said.
Rodgers also says those who inherit a retirement account should then make sure they name the beneficiaries of their own accounts for when they die.
While estate planning can be complicated, preparing with a professional advising team can help ease the burden, making a stressful time a little more bearable.
See how PNC Wealth Management can help you meet your financial goals year-round »
Sometimes dealing with complex rules for inherited retirement accounts can make beneficiaries throw their hands up in frustration.
PNC Point of View
Real People. Real Perspective. Real Insights.
Read more POV Stories »
These articles are for general information purposes only and are not intended to provide legal, tax, accounting or financial advice. PNC urges its customers to do independent research and to consult with financial and legal professionals before making any financial decisions.
This site may provide reference to Internet sites as a convenience to our readers. While PNC endeavors to provide resources that are reputable and safe, we cannot be held responsible for the information, products or services obtained on such sites and will not be liable for any damages arising from your access to such sites. The content, accuracy, opinions expressed and links provided by these resources are not investigated, verified, monitored or endorsed by PNC.
The PNC Financial Services Group, Inc. (“PNC”) uses the marketing name PNC Wealth Management® to provide investment and wealth management, fiduciary services, FDIC-insured banking products and services, and lending of funds through its subsidiary, PNC Bank, National Association (“PNC Bank”), which is a Member FDIC, and to provide specific fiduciary and agency services through its subsidiary, PNC Delaware Trust Company or PNC Ohio Trust Company. Securities products, brokerage services, and managed account advisory services are offered by PNC Investments LLC, a registered broker-dealer and a registered investment adviser and member of FINRA and SIPC. Insurance products may be provided through PNC Insurance Services, LLC, a licensed insurance agency affiliate of PNC, or through licensed insurance agencies that are not affiliated with PNC; in either case a licensed insurance affiliate may receive compensation if you choose to purchase insurance through these programs. A decision to purchase insurance will not affect the cost or availability of other products or services from PNC or its affiliates. PNC does not provide legal, tax, or accounting advice unless, with respect to tax advice, PNC Bank has entered into a written tax services agreement. PNC does not provide services in any jurisdiction in which it is not authorized to conduct business. PNC Bank is not registered as a municipal advisor under the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Act”). Investment management and related products and services provided to a “municipal entity” or “obligated person” regarding “proceeds of municipal securities” (as such terms are defined in the Act) will be provided by PNC Capital Advisors, LLC, a wholly-owned subsidiary of PNC Bank and SEC registered investment adviser.
“PNC Wealth Management” is a registered trademark of The PNC Financial Services Group, Inc.
Investments: Not FDIC Insured. No Bank Guarantee. May Lose Value.
Insurance: Not FDIC Insured. No Bank or Federal Government Guarantee. Not a Deposit. May Lose Value.
Read a summary of privacy rights for California residents which outlines the types of information we collect, and how and why we use that information.
We have tools to help you bank when and where you want.Mobile Apps Directory »
Be part of our inclusive culture that strives for excellence and rewards talent.Visit PNC Careers »
The PNC Financial Services Group, Inc. All rights reserved.