Navigating Inherited Retirement Accounts and Social Security Options
If you’re thinking about what happens to your retirement accounts when you pass them on, or how your loved ones can best manage inherited funds, you’re not alone. In this piece, we’ll explore the implications of inherited retirement accounts on Medicare premiums and discuss timing strategies for Social Security benefits for couples.
Inheriting Retirement Accounts: A Taxing Situation
When someone inherits a retirement account, it can come with more than just a windfall. In fact, these funds could have a long-term impact on their Medicare premiums. Here’s what you need to know:
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Withdrawals and Taxes: Most inheritances aren’t taxed, but retirement accounts are a different story. For non-spousal beneficiaries, withdrawals from inherited retirement accounts are counted as taxable income. Generally, they’ll need to empty the account within ten years. Different rules apply to inherited Roth accounts, which don’t incur tax on withdrawals but still have the same timeline for draining the account.
- Impact on Medicare Premiums: If the inheritor is enrolled in Medicare, withdrawing taxable amounts can push their income high enough to trigger the Income-Related Monthly Adjustment Amount (IRMAA). For 2025, IRMAA surcharges kick in when modified adjusted gross income surpasses $106,000 for single filers and $212,000 for married couples.
To navigate these complexities, it’s smart for anyone inheriting such accounts to consult a tax professional. They can provide tailored advice on how quickly to withdraw funds, aiming to minimize tax burdens and keep more money in the inheritor’s pocket.
Timing Is Key: Social Security Strategies for Couples
Transitioning from retirement accounts to Social Security benefits, let’s address the age-old question: should your spouse claim benefits early or wait?
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Early Claiming vs. Full Retirement Age: If your wife, who is turning 65, applies for Social Security now, she’ll be considered to be applying for both her own benefit and a spousal benefit (based on your earnings). She will receive whichever amount is larger, but she won’t have the chance to switch later on.
- Maximizing Benefits: Generally, it’s advantageous to wait until your spouse reaches full retirement age (which in her case is 67) before claiming benefits. Some individuals even benefit from delaying their claims until age 70 for maximum lifetime payouts.
To assess which strategy will work best for your situation, using a Social Security claiming calculator can provide insights. Additionally, consulting with a fee-only financial advisor can help chart a course that aligns with your family’s unique financial goals.
Conclusion: Take Control of Your Financial Future
Managing inheritances and Social Security can be daunting, but with the right approach, you can navigate these waters smoothly. Whether it’s approaching tax implications or timing your claims, strategic planning can lead to a more secure financial future. So, whether you’re passing on wealth or preparing to claim your benefits, stay informed and proactive.
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Bio: Priya specializes in making complex financial and tech topics easy to digest, with experience in fintech and consumer reviews.