Careful handling of an inherited IRA can lead to long-term wealth building. Suppose Betty Jones dies and leaves her IRA equally to her two children, Charles and Diane.

  • One-half of the money can be transferred into an IRA in the name of Betty Jones (deceased) for the benefit of (f/b/o) Charles Jones.

  • One-half of the money can be transferred into an IRA in the name of Betty Jones (deceased) for the benefit of (f/b/o) Diane Jones.

If this is the case, both Charles and Diane can decide how they want their account to be invested and how rapidly money shall be withdrawn. On the other hand, if either Charles or Diane receives a distribution from this inherited IRA, that amount immediately becomes taxable income. No remedy can restore the tax deferral.