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George Saenz, the Bankrate.com Tax Talk columnistNew rules for inherited IRAs

Dear Tax Talk,
Is it true that the new law allows you to roll over an inherited IRA from anyone?
-- Andrew

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Dear Andrew,
Not exactly. Under the former rules (the new rules took effect in 2007), if you inherited a traditional IRA from anyone other than your deceased spouse, you could not treat the inherited IRA as your own. This means that you could not make any contributions to the IRA. It also means you could not roll over any amounts into or out of the inherited IRA.

Like the original owner, you generally would not owe tax on the assets in the IRA until you receive distributions from it. Unlike an inherited IRA from a spouse, you must begin receiving distributions from the IRA under the rules that apply to beneficiaries. This generally means that you have to start taking income from the IRA soon after inheriting it.

Beginning in 2007, a direct transfer from a deceased employee's IRA, qualified pension, profit-sharing or stock bonus plan, annuity plan, tax-sheltered annuity (Section 403b) plan, or governmental deferred compensation (section 457) plan to an IRA set up to receive the distribution on your behalf can be treated as an eligible rollover distribution if you are the designated beneficiary of the plan and not the employee's spouse. The IRA is treated as an inherited IRA.

To ask a question on Tax Talk, go to the "Ask the Experts" page, and select "taxes" as the topic.

Bankrate.com's corrections policy -- Updated: April 6, 2007
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