Investing Inherited IRAs for Maximum Returns Under New Rules
Hi! My brother and I each inherited IRAs from our mom, who passed away in October 2020. We notice there are new tax rules in terms of required minimum distributions for these IRAs. What investment recommendations would you make for IRAs that maximizes returns? (Let me know if you need more details about my personal goals, but I figure this might be a great column for people in a range of situations who have inherited IRAs from non-spouses!)
Terry Says
First, read this comprehensive article at Fidelity, which explains all the distribution rules for inherited, non-spousal IRAs. A lot depends on whether your mother had already started taking distributions. You will be required to distribute all the assets within 10 years — since recent legislation removes that ability to “stretch and grow” the money for your own retirement.
But I see that your real question focuses on “how to invest” the money in your inherited IRA. That depends on your goals and other investments. Remember, all of the money you withdraw will be taxed as ordinary income. And any losses will not be deductible against your ordinary income as would be the case with money held outside an IRA.
There will be a temptation to speculate inside the IRA with this “found money.” But keep your mother in mind and remember how hard she worked to accumulate this money — and didn’t get the chance to spend all of it before her death. Perhaps you want to invest conservatively for growth — maybe even to be used for a child’s college education. Or you could decide to take 20% out every year and pay the taxes, and then invest the rest in your own ROTH IRA or a 529 college plan for her grandchildren.
