Blackstone Executive Vice Chairman Tony James says he's less optimistic now than before that the U.S.-China trade war could be resolved, but even a smaller deal could help...World Economyread more
The massive market transformation this month that some on Wall Street called a "once in a decade opportunity" might have just been a one-off technical move because of taxes.Marketsread more
The Pentagon will deploy U.S. forces to the Middle East on the heels of the attack on Saudi Arabian oil facilities, United States Secretary of Defense Mark Esper announced...Defenseread more
CNBC did a deep dive through the most recent Wall Street research to find stocks that analysts say are underappreciated.Marketsread more
Shares of MasterCard are up 46% this year, and 1120% since 2011, getting a boost from the strong U.S. consumer.Investingread more
CNBC sat in on an "empathy training" at Amazon PillPack's Somerville offices, which is part of new hire orientation.Technologyread more
Trade with China is the 'big unknown' for the Federal Reserve as it decides how best to support the U.S. economy, says Council on Foreign Relations Director of International...Futures Nowread more
Lobbying experts said the visit is likely an attempt to be in lawmakers' ears as they consider legislation that would impact Facebook.Technologyread more
Yardeni Research's Edward Yardeni believes the U.S. economy is picking up steam.Trading Nationread more
Iran's audacious drone and cruise missile attack on Saudi Arabia's oil producing facilities has provided a critical test yet for the Trump administration's foreign policy. A...Politicsread more
Someone close to you has died and left you money from an individual retirement account. Planning for this should be easy, right? Wrong.
The rules for inherited IRAs are complicated. Recipients are susceptible to making egregious mistakes when handling these accounts, which are subject to different rules than your own traditional IRA.
By comparison, those who inherit IRAs via a spouse have more choices, according to the IRS. For example, they can treat the inherited IRA as their own and add their name to it as the account owner. They could also roll it over into another traditional IRA. Or, they can consider themselves a beneficiary.
The rules for inherited IRAs for individuals other than spouses are more rigid. The biggest difference is that other beneficiaries can never treat the IRA as their own. They cannot contribute to the account or transfer money in and out of it, according to the IRS.
An individual will not owe taxes on money in an inherited IRA until distributions are taken.
But beware: Inherited IRAs are like eggs, and once they're broken, you can't put them back together, according to IRA expert Ed Slott, founder of Ed Slott and Co.
"The people who inherit are never as careful with the money as the one who earned it," Slott said. "It's a little different when you spend your lifetime earning the money."
Here are the top mistakes financial professionals have seen investors make:
Slott still remembers what happened to one client's account when the client died in the late 1990s. The client, who earned a modest salary, managed to accumulate about $600,000 in his IRA. When he died, his son, who was not a client of Slott's, decided his father had invested too conservatively. The son withdrew the money with the intention of investing it elsewhere. What he didn't anticipate was the $250,000 tax bill he just incurred.
That is because inheritors are taxed on distributions from inherited IRAs. Take out all of the money at once and you will be taxed.
"It took his father 40 years to build it and it took him 40 minutes to blow it," Slott said. "He could have stretched that $600,000 over his life expectancy over 30, 40 years."
An inherited IRA must be created from the existing IRA, and not doing so the correct way can cost you.
"If mom leaves you an IRA, it's not your IRA [and] you can't put it in your own name," Slott said. "If you put it in your own name, it's taxable."
In addition to not putting the money in your own IRA, beneficiaries cannot roll the money into a Roth IRA, either, because Roths are funded with post-tax dollars. And inherited Roth IRAs are subject their own special set of rules.
Instead, inheritors should make a trustee-to-trustee transfer to ensure the funds are not erroneously distributed to them.
A properly established inherited IRA account should include the name of the deceased in its title along with the beneficiary. In his ebook on IRAs, Leon LaBrecque, CEO of LJPR Financial Advisors, cites the following example: "John Smith, IRA (deceased December 16th, 2014) FBO John Smith Jr., beneficiary."
Investors often inherit IRAs at a time when they are not thinking about retirement, LaBrecque said. Consequently, they can miss the rules for taking required withdrawals or RMDs, which they must do by Dec. 31 every year.
"When you inherit an IRA, you have to take a required minimum distribution or take the money out within five years," LaBrecque said. "You can always take out a little more, but you have to take that out."
If the inheritor fails to withdraw those funds, a custodian can turn to them after five years and make them take out all of the assets, resulting in a higher tax penalty, according to LaBrecque, who said he saw that very situation happen to a friend.
That bad outcome generally depends on the custodian, and the specific rules of your plan. IRS rules require individuals to pay a penalty for not having taken out the RMDs on time.
In many cases, IRA beneficiaries can arrange things so that the money lasts over a long period of time by taking out RMDs based on their life expectancy. But the same does not go for their own heirs.
Say a mother dies and leaves her IRA to her son. Then when the son dies, he leaves the money to his children. The children will not be able to extend their use of the funds based on their own life expectancy, though they can continue their father's stretch.
"Leave them to the grandkids because the stretch is way longer," LaBrecque suggested.
As more people inherit these accounts, they need to educate themselves and consult experts, according to Richard L. Bergen, president of RLB Wealth Planning Inc.
"You have to really study the rules and make sure you're following what needs to be done," Bergen said.
More from Personal Finance: