3 Ways to Make an Inherited IRA Meaningful

Receiving an inheritance provides an opportunity to be thoughtful about your loved one’s generosity, especially if you’re considering ways to utilize an inherited IRA. Thanks to changes and increased flexibility due to the SECURE Act 2.0, if the decedent had not started Required Minimum Distributions, then beneficiaries of traditional and Roth IRAs have much more flexibility regarding when to use those funds. With fewer restrictions and required withdrawals, you have the chance to think outside of the box about meaningful ways to use this type of inheritance. If you’re wondering what to do with an inherited IRA, consider these three ways to increase the benefit of your inheritance from a loved one while honoring their memory.

Curate a Connection

Receiving an inheritance is understandably bittersweet, and often presents complex emotions. Holidays, birthdays, and anniversaries may be especially challenging to navigate. Have you thought about ways to use an inherited IRA as part of your grieving process? You may find it helpful to use a portion of your inheritance to connect to the memory of your loved one, which can help you move through the grieving process and find healing. A study shared by Psychology Today found that choosing to remember a loved one in meaningful ways can provide tangible comfort. It can also function as a type of reminiscence therapy, which offers multiple benefits for brain health, including reduced feelings of depression and symptoms of memory loss.

Think about ways you can connect to your loved one by using funds from an inherited IRA to observe their birthday or yours, a wedding anniversary, or a day that held special meaning to you and them. If you shared a hobby, consider using your inheritance to continue it, like taking a yearly fishing trip to honor Grandpa’s memory. If they’re the reason for your love of the arts or nature, maybe an annual membership to the symphony or purchasing a plot in a community garden would provide a meaningful way to preserve that connection.

Increase the Impact

An inherited IRA provides a rare opportunity to invest in a meaningful, big-ticket item, but lack of planning can lessen the impact of your inheritance. An estimated 60% of people don’t know how much money they spent the previous month. Spending an inherited IRA on impulse purchases isn’t the only way to lose track of how it’s spent. Instead of absorbing a windfall into your day-to-day expenses, think about how you can take advantage of the unique opportunity to make a big purchase or investment. Provided you have an emergency fund, a personal escrow fund, and you’ve made your maximum annual retirement contribution, consider using an inherited IRA to buy a house, pay for schooling, or take a once-in-a-lifetime trip. Not only will you maximize a windfall, but you’ll also create a specific memory or milestone to honor your loved one. 

Look for Long-term Uses

Have you ever considered the cost of a long life? Medical assistance and care facilities can cost anywhere from $76-$117k annually, For seniors on a fixed income, this can be a significant burden. Long-term care insurance (LTCI) helps cover expenses related to in-home help, transportation, or live-in care at a CCRC or nursing home, and the premiums are partially based on your age. That means buying LTCI is more affordable when you’re younger, but purchasing a plan later in life, especially during major life events like sending kids to college, buying a home, or focusing on adding to your retirement plan, is difficult for many. An inherited IRA provides a unique opportunity to invest in your future healthcare needs in a way that maybe you couldn’t previously afford. 

An “I Love You” That Goes the Distance

Inheriting an IRA reflects your spouse or family member’s desire to care for you beyond their lifetime. They may be gone, but finding meaningful ways to use their generosity is a beautiful way to thank them and celebrate their presence in your life. Consider that specific rules apply to beneficiaries who are spouses or children under 18, so we recommend talking with your tax preparer and estate attorney before making any decisions. If you’ve recently lost a loved one, we’re here to help you navigate this new season of life so that you can be smart about money while honoring their memory.