While the above misconceptions can lead to suboptimal use of IRAs, there are a few other things to consider about IRAs this season.
The 60-Day Rollover Rule
It has only been two years since IRA account holders are limited to one, tax-free, 60-day rollover between IRAs in any one-year period (365 days, not calendar year) regardless of the number of IRAs owned.
The easiest way to avoid an issue is to always move funds via a direct rollover or trustee-to-trustee transfer whereby one institution sends the assets directly to the other for the benefit of the IRA owner. Such transactions are not subject to this rule.
Inheritances
We encounter a lot of widows and widowers who do not realize they have options and automatically want to rollover their deceased spouse’s account into their own. This may be fine but surviving spouses that are young or much older than the deceased may be better served with other tactics.
Surviving spouses under 59½ will owe taxes and a 10 percent early withdrawal if they take the IRA as their own and take a distribution. If they leave the account in the decedent's name, they can make taxable but penalty-free withdrawals. Once they reach age 59½, they can transfer the account into their own IRA.
Leaving the IRA in the decedents name can help older survivors in that it preserves the ability to postpone any RMDs until the younger deceased spouse would have reached age 70½.
Designating Beneficiaries
Things change. It is a good idea to verify that the beneficiaries on IRAs and other accounts are as they should be.