Inherited an IRA? Here's What You Need to Know

Inheriting and IRA is a very meaningful gift, but it comes with a set of rules, deadlines, and tax implications that can quickly feel overwhelming. The good news is that with a little guidance, you can navigate this process confidently and make the most of what you've inherited. One of the most important things about Inherited IRAs to remember is that there are very specific rules to consider and the rules can change depending on who is in office. 

Not all inherited IRAs are treated the same. 

Two Key Factors Shape Everything That Follows:

1. Type of IRA: Traditional IRAs are taxable upon withdrawal, while Roth IRAs offer tax-free distributions if certain conditions are met. Knowing which one you're dealing with sets the foundation for your entire strategy. And though qualified withdrawals from a Roth IRA are tax free, unlike a regular Roth IRA, an inherited Roth IRA still has required minimum distributions.

2. Your Relationship to the Original Owner: Spouses have the most flexibility, including the ability to roll the inherited IRA into their own account and delay Required Minimum Distributions (RMDs) until age 73. Children of the decedent have their own distributions rules as well, that will change depending on their age at inheritance. Non-spouse beneficiaries face stricter rules and tighter timelines.
   

   
   

Are You an “Eligible Designated Beneficiary?”

This chart outlines who is an Eligible Designated Beneficiary and the RMD requirements for each. These five categories get more flexible timelines. Everyone else follows the 10-year rule (bottom).

Beneficiary Type	Who Qualifies	RMD/ Distribution Rules
Surviving spouse	Legally married to the owner at the time of death.	• Roll into your own IRA — delay RMDs to age 73 • Or keep it inherited — RMDs based on your life expectancy or the deceased's age, whichever is later • New for 2024: elect to be treated as the deceased spouse and use their RMD schedule
Minor child of owner	The owner's biological or adopted child under 21. Grandchildren don't count.	• Stretch over life expectancy until age 21 • At 21, the 10-year clock starts — empty the account within 10 years
Person no more than 10 years younger	Born no more than 10 years after the owner. Often a sibling, partner, or close friend.	• Stretch over your own life expectancy (Single Life Expectancy Table) • Annual RMDs required; first one by Dec 31 of the year after death
Disabled individual	Meets the IRS disability definition (IRC §72(m)(7)) — unable to do substantial work due to a long-term or fatal impairment.	• Stretch over life expectancy (Single Life Expectancy Table) • Annual RMDs; no 10-year rule while disability status is maintained
Chronically ill individual	Certified by a licensed practitioner: can't perform 2+ daily living activities for 90+ days, or needs substantial supervision for severe cognitive impairment.	• Stretch over life expectancy (Single Life Expectancy Table) • Annual RMDs; no 10-year rule while certification is maintained

Everyone Else -- defaults to the standard 10-year rule: the full balance must be withdrawn within 10 years of the owner's death.

A Few Things to Keep in Mind

• The surviving spouse has the most flexibility, including a new 2024 option to elect the deceased spouse's RMD schedule

• Minor children get a temporary stretch, but the 10-year clock starts at age 21 — a detail many people miss

• Disabled and chronically ill beneficiaries must maintain their qualifying status to keep the stretch benefit

• The "not more than 10 years younger" category is the most overlooked category. It can apply to siblings, partners, or close friends

  
  

Anyone who doesn't fall into one of these five categories defaults to the standard 10-year rule, as noted at the bottom of the chart.

The 10-Year Deadline

Thanks to the SECURE Act of 2019, most non-spouse beneficiaries and children of the decedent over age 21 must fully withdraw the inherited IRA balance within 10 years of the original owner's death. There's no requirement to take distributions every year, but the account must be completely emptied by the end of year 10.

Miss that deadline? You could face significant tax penalties-up to 25% excise tax of the amount not distributed as required! 

Taxes

For traditional IRAs, every dollar you withdraw is counted as ordinary taxable income in that year. Don't forget to factor in state taxes as well. If you've inherited a Roth IRA, you're in a more favorable position. Since contributions were already taxed, qualified withdrawals are tax-free. This is where Financial Planning and Tax Planning are very helpful. Working with your advisor to discuss your individual situation and strategic financial and tax planning strategies can be incredibly helpful. 

Your Action Checklist

If you've recently inherited an IRA, here are the immediate steps to take:

1. Contact the IRA custodian — notify the financial institution and provide required documentation

2. Confirm your beneficiary status — spouse, non-spouse, or eligible designated beneficiary

3. Identify the account type — traditional or Roth

4. Consult a financial advisor or CPA to build a withdrawal plan — the rules are complex enough that professional guidance is well worth the investment to map out distributions based on your tax situation and financial goals

   
   

Take Timely Action On an Inherited IRA

Beyond just following the rules, an inherited IRA can be a genuine financial planning opportunity when approached strategically. Consider how it fits into your broader financial picture: your retirement timeline, cash flow needs, and even your own estate planning.

It's also worth staying alert to legislative changes. IRA rules have shifted significantly in recent years, and they could change again. Staying informed and working with an advisor who does, can protect you from surprises down the road.

The worst thing you can do is nothing. Delays and missed deadlines can turn a financial gift into an unexpected tax burden. A prudent next step would be to start planning now.

Have questions about your inherited IRA? Reach out — we're here to help you make smart, informed decisions every step of the way.