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QUESTION:

I am 50 & still work PT & have a Pension fund thru my employer. My best friend has named me Beneficiary of her retirement acct. when she passes away (she has advanced staged liver cancer & no relatives). I'm curious if I take receipt of the money in a lump sum, since it's not an inheritance, would I have to pay a penalty and/or taxes? Could I 'rollover' the money into IRA's for my own retirement with no penalties? This is not part of a Will, just strictly a beneficiary receipt of the funds. Thank you!
Beneficiary of Friend’s Retirement Acct

ASK YOUR MONEY'S ROSEMARIE BOYD ANSWERS:

Dear Beneficiary:

In answer to your question, yes, as beneficiary you may take the IRA distribution as a lump sum.  However, you will be taxed on the entire amount.  The resulting tax could be very substantial depending on your tax bracket and the amount of money being received.  As to your question regarding the roll over, the answer is no.  You cannot roll this IRA into your own IRA.  You could consider, however, rolling it into a beneficiary IRA.  Doing this means you must begin taking minimum distributions from the IRA immediately.  IRS publication 590 will have the table showing the required minimum distribution which you must take.  There is no penalty or taxes for doing this rollover, but the minimum distributions will be taxable to you when you receive them each year.

Thanks for your question,

Rosemarie A. Boyd, CFP

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