Can Inherited Investments Be Rolled Over?

by Maggie McCormick

Placing investments that you've inherited into your own retirement accounts is a smart move, as it gives you more money for the golden years. Whether or not you can do this, however, depends on your relationship with the deceased person and the type of investment account you inherited. It's a good idea to research your options before making a mistake that leads to a taxable event.

Inherited 401k

Since 2007, anyone who receives a 401k as an inheritance can roll over the amount into an individual retirement account in order to defer the taxes. Simply open an IRA account and have the estate directly transfer the money from the 401k into your IRA -- if the company pays you directly you'll have to pay taxes. When doing this, though, you do need to make minimum yearly withdrawals. This is an amount based on how long you're expected to live.

Inherited IRA

Only the spouse of the deceased can roll over an inherited IRA into a new IRA account. Again, you would have the deceased's IRA company directly deposit this money into your own IRA account -- traditional IRA into traditional IRA and Roth IRA into Roth IRA. Once the money is in your account, you can treat it as an ordinary IRA account. You do not necessarily have to make withdrawals unless it's a traditional IRA and you are 70 1/2 years old.

Other Inherited Investments

If you inherit other types of investments, such as stocks and bonds, they will transfer in your name in a general investment account. There is no tax at this time, but you will have to pay taxes on the capital gains -- based on the price at the time of death -- when you decide to sell the investment.

When Rolling Over Isn't an Option

When you've inherited an investment but you can't roll it over into your own retirement accounts, you still have options to reduce your taxes. You can receive a Roth IRA in one lump-sum without paying tax on it, for example, since the deceased already paid taxes on that money. With a traditional IRA, you have the option of cashing out, which you'll have to pay the full amount of taxes on, or putting it in an Inherited IRA, which you must then make minimum withdrawal amounts on. The good news is that you'll only have to pay tax on the amount of your yearly withdrawal.

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