You may have recently inherited an individual retirement account (IRA) from a loved one. But while you’re in mourning, you also may have to make some complex decisions around handling those funds. So we’re here to clear up the complexities of inherited IRAs.
The major rules behind inherited IRAs revolve around when you are required to start making withdrawals.
These rules largely depend on your relationship to the deceased and the age at which the deceased passed. Spouses who were named as beneficiaries generally have the most flexibility—so let’s start there.
Spousal Beneficiaries
A spouse of the deceased may roll over the inherited proceeds to their own IRA. This is key because it allows you to delay taking required minimum distributions (RMDs) until age 73. RMDs are certain amounts of money one must begin to withdraw from a traditional IRA each year, depending on Internal Revenue Service time tables.
So, say you inherited a $500,000 IRA. And you turn 73. At that point, your annual RMD would be $18,867.92. (This accounts for the inherited balance only and not any potential additional balance in your own IRA).
Moving forward, you can also transfer proceeds into an inherited IRA in your name. Note that you can’t make additional contributions to an inherited IRA.
Moreover, the rules here largely depend on the age of the deceased when they passed.
Let’s say your late spouse passed before RMD age, which is generally 73. You can postpone RMDs until your late spouse would have reached age 73. So if the deceased passed at age 50, the account may continue growing from capital gains and interest for 23 years, before you’re required to start making withdrawals.
Or, you can postpone RMDs until Dec. 31 of the year following the year your spouse passed.
In addition, you may choose to withdraw all funds from the inherited IRA within 10 years of your spouse’s passing.
Now, let’s take a look at what happens when your late spouse has already reached RMD age.
If your spouse has already begun taking RMDs before they passed, you would calculate RMDs based on your life expectancy, beginning no later than Dec. 31 of the year after the deceased passed.
Non-Spousal Beneficiaries
Non-spousal beneficiaries don’t have as much flexibility as spousal beneficiaries. For starters, they can’t transfer the proceeds to their own IRAs.
They generally need to transfer the funds to inherited IRAs in their names and withdraw all funds within 10 years.
But let’s take a closer look.
If the deceased passed away before they reached RMD age, you must withdraw the entire balance by Dec. 31 of the year marking the 10th anniversary of their death.
It’s a bit more complicated otherwise.
If the deceased passed away after they started taking RMDs, you need to pay attention to the following 10-year period.
You must take an RMD in years one through nine. And you must withdraw the remaining balance by Dec. 31 of the year marking the 10th anniversary of the deceased’s death.
Eligible Designated Beneficiary
You fall into the category of eligible designated beneficiary if you meet the following criteria:
- Direct child of the deceased
- Chronically ill
- Permanently disabled
- No more than 10 years younger than the deceased
If you are an eligible designated beneficiary, you must transfer the proceeds into an inherited IRA in your name.
But you have some flexibility. You generally won’t need to withdraw all funds within 10 years as a non-spousal beneficiary would. You can stretch distributions and calculate RMDs based on your own life expectancy.
When it’s time to begin taking RMDs, the age of the deceased is important. And you have options.
If the deceased passed before reaching RMD age, you can begin taking RMDs by Dec. 31 of the year following their death. You also may choose to withdraw all funds up until Dec. 31 of the tenth year following the year when the deceased passed.
If the deceased died after they began taking RMDs, you must start taking RMDs by Dec. 31 of the year after the deceased passed.
But what if a minor child inherits from a parent? In this case, they must take RMDs each year until age 21. And they must withdraw all funds from the account within 10 years after reaching age 21, according to Greenbush Financial Group, a registered investment advisor firm.
Taking a Lump Sum
Any beneficiary can choose to take the inherited retirement funds as a lump sum all at once. However, you would owe income taxes on the entire amount, and it may push you to a higher income bracket.
The Bottom Line
In an act of kindness and gratitude, a loved one may have passed on to you the IRA savings they had worked long and hard for. But managing these assets can be complex. There are several complicated rules that dictate when you need to start withdrawing funds.
A surviving spouse has the most flexibility, as they may roll over the proceeds into their own IRAs. This allows them to delay RMDs until age 73. Non-spousal beneficiaries generally need to withdraw all funds within 10 years. And it can get even more complex for eligible designated beneficiaries.
Because inherited IRA rules and their tax implications can vary widely based on numerous factors, it’s always a good idea to seek a qualified tax advisor when receiving retirement benefits as an inheritance.
The Epoch Times copyright © 2025. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
