If you inherited an IRA last year, a tax planning deadline is approaching. The IRA beneficiaries are set on Sept. 30 of the year following the death of the IRA owner. Normally, heirs get to take distributions from inherited IRAs over their lifetimes. But if just one beneficiary of the account isn’t an individual, all heirs must withdraw their IRA shares within five years. This can create problems when the IRA owner names a charity or a university as one of the beneficiaries.
Redeeming a nonindividual’s IRA interest by Sept. 30 can pay dividends. If the charity, school, etc., is paid off by then, the remaining individual beneficiaries can take distributions over their lives, enjoying more tax-free buildup inside the IRA.