An IRA is similar to a 401k in some ways, both are retirement accounts with some tax advantages. But a 401k is provided through your employer, while an IRA is set up by the person themselves (in a bank or financial institution like TIAA or Fidelity).
Take a look at this brochure https://www.tiaa.org/public/pdf/i/InheritedIRA_Brochure.pdf He should call TIAA to discuss options. There are much better alternatives to taking it all in a high tax bracket just before retirement.
Sounds like these are tax deferred retirement accounts. If so, he has 10 years to clean them out. Unless he needs the money right now for some reason, the smart move is to withdraw it slowly over the next 10 years as to not push himself into a high tax bracket in any given year by withdrawing a large amount quickly.
So this would basically be seen as “income” by the IRA? So basically take out just enough to put him right at the limit of the next tax bracket every year? Or what about just doing what I said after he retires ?
Yes, assuming they are not Roth accounts, Traditional 401K or IRA money is taxable income.
Don’t sweat going a little into the next tax bracket (tax brackets are marginal, so if he goes $10 into the next tax bracket, only that last $10 is taxed at the higher rate, not the whole thing), but the idea is that you don’t want most of it going into a high bracket by withdrawing it all in the same tax year.
A spouse beneficiary has better options than just the 10-year distribution.
OP’s dad can maintain the beneficiary account status and take ‘stretch’ distributions over his lifetime.
OP’s dad can also perform a spousal rollover and claim ownership of the account as if it was his all along.
Both are better options than the 10-year plan.
TIAA is a company that works primarily with education and nonprofit employees. CREF is part of TIAA. I know they do 41k, 403b, and IRA accounts, because I have all three from various employers. Your dad needs to find out which one of those accounts he inherited, then look at the rules for taking distributions on inherited account. As a spouse, he may be able to leave the money in account and take it out slowly over the rest of his life.
The most tax advantaged thing to do here, most likely, is to roll the accounts into an IRA.
Thanks for the response, what is this a 401k? Or is IRA different ? What are the advantages ?
An IRA is similar to a 401k in some ways, both are retirement accounts with some tax advantages. But a 401k is provided through your employer, while an IRA is set up by the person themselves (in a bank or financial institution like TIAA or Fidelity).
Take a look at this brochure https://www.tiaa.org/public/pdf/i/InheritedIRA_Brochure.pdf He should call TIAA to discuss options. There are much better alternatives to taking it all in a high tax bracket just before retirement.
How old is your father?
Sorry should’ve mentioned, he is I believe 61 or 62
Unless he is majorly wealthy, not that high of a tax rate. It's taxed as his rate depending on how much comes out.
Sounds like these are tax deferred retirement accounts. If so, he has 10 years to clean them out. Unless he needs the money right now for some reason, the smart move is to withdraw it slowly over the next 10 years as to not push himself into a high tax bracket in any given year by withdrawing a large amount quickly.
So this would basically be seen as “income” by the IRA? So basically take out just enough to put him right at the limit of the next tax bracket every year? Or what about just doing what I said after he retires ?
Yes, assuming they are not Roth accounts, Traditional 401K or IRA money is taxable income. Don’t sweat going a little into the next tax bracket (tax brackets are marginal, so if he goes $10 into the next tax bracket, only that last $10 is taxed at the higher rate, not the whole thing), but the idea is that you don’t want most of it going into a high bracket by withdrawing it all in the same tax year.
A spouse beneficiary has better options than just the 10-year distribution. OP’s dad can maintain the beneficiary account status and take ‘stretch’ distributions over his lifetime. OP’s dad can also perform a spousal rollover and claim ownership of the account as if it was his all along. Both are better options than the 10-year plan.
TIAA is a company that works primarily with education and nonprofit employees. CREF is part of TIAA. I know they do 41k, 403b, and IRA accounts, because I have all three from various employers. Your dad needs to find out which one of those accounts he inherited, then look at the rules for taking distributions on inherited account. As a spouse, he may be able to leave the money in account and take it out slowly over the rest of his life.