Financial Advice Q&A

Occasional Visitor
Posts: 1
Can we cash out an inherited IRA?
[ Edited ]

My siblings and I are in the process of settling my mother's estate. We have been instructed to submit applications for an IRA-BDA through the IRA account holder (PNC). The questions we have are not being answered by her previous financial planner. 1) All parties want to liquidate their share (25%) and have no further dealings with this financial institution. 2) Does this account have to be distributed to the IRA-BDA or can it be cashed directly out? 3) If cashed out, are there any penalties or fees associated? This has been very frustrating and has occupied our time to grieve. Thank you in advance for any assistance or direction you can provide.

Posted: 2014-04-11 05:50 PM
Other Answers: 1
Community Manager
Posts: 1,009

I’m sorry to hear about the loss of your mother and the additional stress this IRA issue is adding into your lives. I’m happy to try to help.


It’s your money
In short, when you inherit an IRA either in total or along with other beneficiaries, the account is yours to do with whatever you please. In other words, if you or any of your siblings wish to cash out your portion of the account, you can do just that. 


Cashing out can be costly
Having said that, cashing out an inherited IRA all at once isn’t something I’d typically recommend because of the potential tax implications of doing so.  As a beneficiary you wouldn’t be subject to any penalties on your withdrawals. However, any previously untaxed money that you take from the account will be treated as ordinary income to you.  As such, it will be added to your other income for the year and will be taxed accordingly. If you’ve got a lot of other income or if the withdrawal is substantial, you could end up paying more tax on the withdrawal than if you took a more measured approach.


Keep deferring taxes?
Because of this, it’s often a good idea for each beneficiary to establish a beneficiary IRA (also called an inherited IRA) and have the inherited IRA divided up according to the beneficiary designations on the original account.  This will allow each of you to continue deferring taxes on your portion of the account if you choose.  The only exception will be a taxable Required Minimum Distribution you’ll have to take out each year. Also, if you want or need to do so, you can always take out more than the minimum required amount each year.


As for the investments you choose to keep in the account and who you choose to be your IRA custodian, that’s also completely up to you.  You can change the investments and even transfer the account to another custodian if you want with no tax implications in either case. The new inherited IRAs will initially have to be established with the current custodian though. Then you can transfer them if you wish. It’s probably best to get with a CPA or other qualified tax provider first though just to make sure you don’t step on the wrong side of the tax laws for each of your personal situations. Here’s an article on the might help as well: Inherited IRA? 7 Things You Need to Know.


So in summary, even though you’re frustrated, I’d urge you not to let that cause you to pay more taxes than you have to – especially when you’ve got other options available.  


Thanks so much for your question. I hope this helps and my condolences once again.



Posted: 2014-04-14 09:25 AM


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