What is an Inherited IRA?
If you are named as a beneficiary of the IRA of someone who has died, the amount you inherit becomes an Inherited IRA. The rules that apply to Inherited IRAs differ depending on the type of IRA you inherit and whether you are the spouse of the deceased IRA owner.
What are the rules if I inherit a Traditional IRA from a spouse?
If your deceased husband or wife named you as the beneficiary of their Traditional IRA, you have several choices.
If you are the only named beneficiary, you can treat the IRA as your own, and designate yourself as the account owner. This will allow you to make additional IRA contributions each year, and you will be taxed on the money in the account only when you withdraw it.
As a spouse, you also have the choice, even if you are not the sole beneficiary, of treating yourself as the beneficiary of the IRA, or rolling the inherited IRA money into your own IRA or into retirement plan sponsored by an employer that accepts rollover IRA contributions. To avoid paying income taxes you must roll the contribution into your own IRA or another retirement plan within 60 days.
What if I inherit a Traditional IRA from someone other than a spouse?
If you inherit a Traditional IRA from someone other than your spouse, you cannot treat the IRA as your own and you must request distributions from the IRA based on your life expectancy and pay income taxes on those distributions each year. To find out when you must take a distribution and how much you must withdraw each year, see IRS Publication 590. (Note a change in the law effective for deaths occurring after Dec. 31, 2019: Distributions must be made by the end of the tenth year following the year of death. Payments based on life expectancy will no longer apply to everyone, but apply only in certain situations, such as a disabled beneficiary, a minor child or a beneficiary no more than 10 years younger than the IRA owner.)
What if I inherit a Nondeductible IRA or a Roth IRA?
Different rules apply to Nondeductible IRAs and Roth IRAs since income taxes have already been paid on the money contributed to the IRA. See IRS Publication 590.
What if the estate of the individual who died paid taxes on the money in the IRA?
If estate taxes were paid on the money in the IRA an individual may be able to claim an income tax deduction for payments that person receives from the Inherited IRA each year. See IRS Publication 559.< Back