Table of Contents
Save thousands each year, and gain control of what's yours.
Join our newsletter
to get trending content!
Key Takeaways
- An inherited IRA follows strict IRS rules based on your relationship to the original owner, the IRA type, and whether distributions had already started.
- The SECURE Act changed everything for most non-spouse beneficiaries by replacing lifetime stretch payouts with the 10-year rule.
- Spouses have the most flexibility, including rolling the IRA into their own account or delaying RMDs based on age.
- Missing Required Minimum Distributions can trigger steep IRS penalties, making timing and tracking critical.
- Smart withdrawal planning can significantly reduce taxes and help preserve more of your inheritance.
An Inherited IRA often comes with confusion, stress, and unexpected tax questions. You did not open this account yourself, yet you are now responsible for following complex IRS rules. This guide explains how an Inherited IRA account works, who can inherit one, how distributions are taxed, and what the latest rules mean for you.
What is an Inherited IRA?
An Inherited IRA is a retirement account you receive after the original owner passes away. Instead of closing the account immediately, the IRS allows beneficiaries to continue holding the assets under specific rules.
These rules depend on several factors:
- Your relationship to the original owner
- The type of IRA (Traditional or Roth)
- Whether the owner had already started taking distributions
While the account still grows tax-deferred or tax-free in some cases, withdrawals are required under strict timelines. Understanding IRA inheritance rules early helps prevent penalties and unnecessary taxes.
Before we dive into the inheritance rules, it’s important to understand the foundation
Who Can Inherit an IRA?
Almost anyone can inherit an IRA. The IRS allows account owners to name spouses, family members, friends, trusts, or even their estate as beneficiaries. However, the rules change dramatically depending on who inherits the account.
This distinction matters because inherited IRA rules are not one-size-fits-all. A spouse has far more flexibility than a non-spouse, and certain beneficiaries receive special treatment under the law.
What are the Different Types of Inherited IRA Beneficiaries?
Your relationship to the original account owner determines how fast you must take withdrawals, whether annual distributions apply, and how much flexibility you have. Understanding the different types of inherited IRA beneficiaries is the first step to avoiding costly mistakes and choosing the right distribution strategy.
-
Spouse Beneficiary
A surviving spouse has the most flexibility. They can treat the IRA as their own, remain a beneficiary, or take distributions under inherited IRA rules.
-
Non-Spouse Individual Beneficiary
Most non-spouse beneficiaries fall under the SECURE Act’s payout requirements, including the inherited IRA 10-year rule.
-
Eligible Designated Beneficiary (EDB)
Some non-spouse beneficiaries qualify for special treatment. These include:
- Minor children of the original owner
- Disabled individuals
- Chronically ill individuals
- Beneficiaries are not more than 10 years younger than the deceased
-
Trust or Estate Beneficiary
Trusts and estates can inherit IRAs, but distributions must follow strict IRS guidelines and the trust’s structure.
What are the New Rules for Inherited IRA Distributions?
The SECURE Act reshaped IRA Required Minimum Distribution (RMD) inherited rules. Here are some key updates regarding the changes:
- The elimination of lifetime “stretch” IRAs for most non-spouses
- Mandatory full distribution within 10 years for many beneficiaries
- Annual RMDs are required if the original owner has already reached their Required Beginning Date
These changes increased the tax impact of inherited accounts and made proactive planning more important.
Who is Exempt From the Inherited IRA 10-Year Rule?
Eligible Designated Beneficiaries are not subject to the strict 10-year payout requirement.
This group includes:
- Surviving spouses
- Minor children (until adulthood)
- Disabled individuals
- Chronically ill individuals
- Beneficiaries close in age to the original owner
These beneficiaries can use life expectancy-based inherited IRA RMD rules, allowing distributions to be spread over time.
How Do Inherited IRA Rules Work for Spousal Beneficiaries?
Spouses have options that no other beneficiaries receive.
-
Option 1: Treat the IRA as Your Own
A spouse can roll the account into their own IRA. This removes inherited account restrictions and delays RMDs until their own required beginning date, usually age 73. This option works well for spouses who do not need immediate access to funds.
-
Option 2: Keep it as an Inherited IRA
By keeping the account titled as inherited, a spouse can take withdrawals at any age without the 10% early withdrawal penalty. This flexibility is helpful for younger spouses.
-
Option 3: Take Distributions Only
A spouse may also choose to take distributions without rolling over the account, depending on income needs and tax planning. Understanding inherited IRA account rules helps spouses choose the option that fits their age, income needs, and tax situation.
-
RMD Implications Based on Age
The best option often depends on the spouse’s age. Younger spouses may benefit from keeping the account inherited to avoid early withdrawal penalties. Older spouses may prefer rolling it into their own IRA to delay or simplify RMDs.
Evaluating how RMD timing changes under each option is key to minimizing taxes and maintaining a steady retirement income.
What are the Inherited IRA Rules for Non-Spouse Beneficiaries?
Non-spouse beneficiaries face stricter limitations.
They must:
- Open a properly titled Inherited IRA account
- Avoid making new contributions
- Follow mandatory distribution timelines
For most non-spouses, the inherited IRA distribution rules require the account to be fully emptied within 10 years of the owner’s death. If the original owner had already started RMDs, annual withdrawals are required during those 10 years. This change has made RMDs for inherited IRAs more complex than before.
What are the Required Minimum Distributions (RMDs) for Inherited IRAs?
If you inherit a retirement account, understanding inherited IRA RMD rules is one of the most important parts of managing the money. RMDs determine when you must take withdrawals and how much you must take. Missing them can lead to big penalties.
-
When are RMDs Required
Whether you must take RMDs depends on two things
- Whether the original owner had already started RMDs before they died.
- Your status as a beneficiary under current law.
For accounts inherited after the original owner started taking RMDs, you generally must continue taking annual distributions. These are based on IRS life expectancy tables and your age. If the original owner hadn’t begun RMDs yet, you may not have annual requirements, but you still must meet the inherited IRA 10-year rule.
This means the entire account balance must be withdrawn by the end of the 10th year after the owner’s death.
-
Differences Between Pre-2020 and Post-2020 Inheritances
Before 2020, many beneficiaries could use a “stretch” method, taking small RMDs each year over their own life expectancy. That allowed the account to grow tax-deferred for decades.
After the SECURE Act, the rules changed for most inheritances occurring in 2020 or later. Now, many beneficiaries must empty the account within 10 years. Annual RMDs are only required during that window if the original owner had already begun distributions before passing. Otherwise, you can wait and then take the full balance by year 10.
-
IRS Penalty for Missed RMDs
The penalty for not taking a required withdrawal on time is steep. The IRS can charge up to 50% of the amount you should have withdrawn but didn’t. That’s why understanding IRA’s required minimum distribution inherited rules and marking withdrawal dates on your calendar is essential.
How Do Required Minimum Distributions Work for Inherited IRAs?
Minimum required distribution for inherited IRA rules depends on when the owner died and who inherited the account. For accounts inherited before 2020, older rules may apply. For newer inheritances, beneficiaries must determine
- Whether annual RMDs are required
- When distributions must begin
- When the account must be fully emptied
Missing an RMD can result in steep IRS penalties, making careful tracking essential.
Inherited IRA Withdrawal Rules Explained
Inherited IRAs are not like accounts you own personally. But in most cases, you can access funds more flexibly than you think.
-
Can You Withdraw Anytime?
Yes. Inherited IRA rules allow beneficiaries to withdraw from the account at any time. You are not subject to the same age-based penalties that apply to your own IRA. That means even if you are under 59½, you can take money out without paying an early withdrawal penalty.
-
Are Early Withdrawal Penalties Applicable?
No. The IRS does not charge the usual 10% early withdrawal penalty on distributions from an inherited IRA, even if the beneficiary is younger than 59½. The account is treated differently because you did not make the original contributions.
-
Lump Sum vs. Staggered Withdrawals
You have choices about how you take money out
- Lump-Sum withdrawalYou can take the entire balance in a single year. This gives you the cash immediately, but it can push your taxable income higher for that year.
- Staggered (Annual) WithdrawalsYou can spread distributions over multiple years. This strategy can reduce your annual tax bill and give you more flexibility with income planning.
There is no one “right” choice. The best approach depends on your financial situation, tax bracket, and goals. But knowing that both options are available gives you room to plan smartly.
Are Inherited IRAs taxable?
Yes, inherited IRAs are generally taxable, but the answer depends on the account type and beneficiary.
-
Traditional Inherited IRAs
Distributions are taxed as ordinary income. Even though there is no early withdrawal penalty, taxes still apply.
-
Inherited Roth IRAs
Qualified withdrawals are usually tax-free. However, if the account does not meet the five-year rule, earnings may still be taxable.
How Can You Reduce Taxes on an Inherited IRA?
Poor planning can turn an inheritance into a heavy tax burden. The strategies to reduce taxes on an inherited IRA include:
- Spreading withdrawals across multiple years
- Coordinating distributions with lower-income years
- Aligning withdrawals with other retirement income
- Seeking professional guidance for larger accounts
How Do You Set Up an Inherited IRA?
Setting up an inherited account requires precision. The steps include:
- Notifying the IRA custodian of the owner’s death
- Submitting required documents
- Opening a correctly titled inherited account
- Transferring funds directly, not through personal accounts
- Confirming distribution obligations
What Common Mistakes Should Inherited IRA Beneficiaries Avoid?
Some mistakes can cost thousands in unnecessary taxes or penalties. Avoid the following mistakes, which many beneficiaries make:
- Miss distribution deadlines
- Ignore tax planning
- Forgot the 10-year rule
- Leave investments unchanged
- Misunderstand inherited IRA distribution requirements
Take Control of Your Inherited IRA Today Inherited IRAs come with strict timelines, tax exposure, and planning challenges.
The right strategy can protect your inheritance and align it with your long-term goals. If you need guidance setting up an account, managing distributions, or exploring advanced strategies
Schedule a free consultation with Self-Directed Retirement Plans
FAQs
Can you convert an inherited IRA to a Roth?
In most cases, no. Non-spouse beneficiaries are not allowed to convert an inherited traditional IRA into a Roth IRA. Once inherited, the account must follow inherited IRA distribution rules, and conversions are prohibited. The exception is for spouses. A surviving spouse can choose to treat the inherited IRA as their own.
After doing so, they may convert it to a Roth IRA, just like any personal IRA. This option is only available if the spouse formally retitles the account as their own.
How do you calculate an inherited IRA minimum distribution?
Inherited IRA RMDs are calculated by dividing the prior year’s December 31 account balance by a life expectancy factor from IRS tables. Most non-spouse beneficiaries use the Single Life Expectancy Table, with the factor decreasing each year. For IRAs inherited after 2019, the 10-year rule often applies.
In many cases, annual RMDs are only required if the original owner had already started RMDs. Spouses have additional options, including delaying distributions or treating the IRA as their own.
Do beneficiaries pay tax on IRA inheritance?
Usually, yes. Withdrawals from an inherited traditional IRA are taxed as ordinary income. There is no early withdrawal penalty, but income tax still applies. Inherited Roth IRAs are generally tax-free if the five-year rule is met. If not, earnings may be taxable.
Most non-spouse beneficiaries must still withdraw the full balance within ten years, which can affect overall tax planning.
Can I roll over an inherited IRA?
It depends on your relationship to the original owner. Spouses can roll an inherited IRA into their own IRA and follow normal IRA rules, including Roth conversions. Non-spouse beneficiaries cannot roll the IRA into their own account. They must use a direct trustee-to-trustee transfer into a properly titled inherited IRA.
The funds cannot pass through the beneficiary, or they may become taxable.
Can you do a QCD from an inherited IRA?
Yes, if you are age 70½ or older. The distribution must be sent directly from the inherited IRA to a qualified charity. If the funds go to you first, it does not qualify. A QCD can satisfy Required Minimum Distributions and allows up to the annual IRS limit to be donated tax-free. This feature reduces the taxable income while supporting charitable causes.
Does the 10-year rule apply to a spousal inherited IRA?
No. The 10-year rule generally does not apply to spouses. Spouses are considered Eligible Designated Beneficiaries and have more options. They may treat the IRA as their own or take distributions based on life expectancy. This allows RMDs to be delayed until the spouse’s own Required Beginning Date.
Can a trust inherit an IRA?
Yes, but the trust must be named as the beneficiary on the IRA custodian’s form. The IRA cannot be moved into a trust during the owner’s lifetime. To receive favorable tax treatment, the trust must meet IRS “see-through” rules.
Proper planning is critical, especially after the SECURE Act, to avoid accelerated taxation or loss of distribution flexibility.
