What to Know About Inheriting Accounts

Inheriting accounts can feel overwhelming, especially during a time of grief when clear thinking can be difficult. Taking the time to ensure these transfers are managed effectively is crucial. At Vesta Wealth Advisors, we’re here to support you through this challenging process, providing guidance and helping you make informed decisions that honor your loved one’s legacy and secure your financial future. Here’s what you need to know about the types of accounts you may inherit and how to move forward:

Retirement Accounts

When inheriting retirement accounts such as IRAs or 401(k)s, you have several options depending on your relationship to the deceased and the type of account:

  • Spouse Beneficiaries: You can treat the account as your own, roll it over into your retirement account, or take required minimum distributions (RMDs).
  • Non-Spouse Beneficiaries: Typically, you must withdraw the funds within 10 years under the SECURE Act, though exceptions exist for certain eligible beneficiaries.

Non-Retirement Accounts

For non-retirement accounts, such as brokerage or bank accounts, the process can vary:

  • If the account was jointly owned, you might automatically become the sole owner.
  • If you’re named as a beneficiary, the account will transfer to you without going through probate.
  • If there are no named beneficiaries, the account may need to go through probate, which can be time-consuming and involve legal fees.

These accounts often come with a “stepped-up” cost basis. This adjusts the cost basis of the investments to their value at the time of the original owner’s passing, potentially reducing capital gains taxes when sold.

Life Insurance and Annuities

These accounts are distributed directly to the named beneficiaries, often bypassing probate. However, tax implications can vary, especially with annuities, so it’s important to understand the details.

Moving Forward

There are a few important steps to keep in mind when inheriting accounts:

  1. Assess Your Options: Understand the rules and choices available for each type of account. For example, consider whether to keep investments, roll over retirement accounts, or liquidate assets.
  2. Plan for Taxes: Different accounts come with varying tax obligations. Consulting with an advisor can help you minimize the impact and make the most of your inheritance.
  3. Align With Your Goals: Decide how the inherited assets fit into your overall financial plan. Whether it’s saving for retirement, paying down debt, or investing for the future, use the funds to support your priorities.
  4. Consult Professionals: We’re here to provide guidance tailored to your specific needs and goals. If additional resources are needed, such as an attorney or tax professional, we’ll provide recommendations.

At Vesta Wealth Advisors, we’re here to help you navigate the complexities of inheriting accounts and make confident decisions for your financial future. Reach out to us today to get started.

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