
Inheriting IRA’s can be a blessing, and a headache. It’s comparable to walking into an Ice Cream shop and having your excitement quickly replaced with uncertainty of which flavors to get. There are a variety of ways to go about inheriting IRA’s, all are listed below. We searched the web for the best way to present inherited IRA options, depending on various situations, and found a great resource from Charles Schwab that we have included this post. To simplify the process, first determine:
- Is the IRA to be inherited Traditional or Roth?
- Is the IRA being Inherited from a spouse?
- Was the original owner of the IRA over or under 72?
Once these have been determined, you can skip to applicable options down below. If you would like help determining the best option for you and your unique financial situation, that’s why we’re here. Please reach out to us at info@cosnerfg.com.
Traditional IRA: Spouse inherits
When inheriting a Traditional, Rollover, SEP, or SIMPLE IRA from a spouse, you have several options. Most commonly, those who inherit an IRA from a spouse transfer the funds to their own IRA. However, all options should be evaluated to determine which is right for you.
If your spouse (the account holder) was under 72, these are your choices:
Account type | You transfer the assets into your own existing or new IRA. |
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Money is available | At any time, but a penalty will apply to withdrawals made before you reach age 59½. |
Other considerations |
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Account type | You transfer the assets into an Inherited IRA held in your name. |
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Money is available |
Required Minimum Distributions (RMDs) are mandatory, and you have the option to postpone distributions until the later of:
Distributions must begin no later than 12/31 of the year the account holder would have reached 72. |
Other considerations |
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Account type | You transfer the assets into an Inherited IRA held in your name. |
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Money is available | At any time up until 12/31 of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed. |
Other considerations |
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Account type | None. All assets in the Traditional IRA are distributed to you. |
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Money is available | All at once. |
Other considerations |
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If your spouse (the account holder) was OVER 72, these are your choices:
Account types | You transfer the assets into your own existing or new IRA. |
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Money is available |
At any time, but a penalty will apply to withdrawals made before you reach age 59½. |
Other considerations |
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Account type | You transfer the assets into an Inherited IRA held in your name. |
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Money is available |
You must begin taking an annual RMD over your life expectancy beginning no later than 12/31 of the year following the original account holder’s death. Note: If the original account holder did not take an RMD in the year of death, an RMD must be taken from the account by 12/31 of the year the original account holder died. |
Other considerations |
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Account type | None. All assets in the Traditional IRA are distributed to you. |
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Money is available | All at once. |
Other considerations |
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Traditional IRA: Non-spouse inherits
When inheriting an IRA from someone other than your spouse, there are different withdrawal rules depending upon the type of beneficiary you are (Eligible Designated Beneficiary or Designated Beneficiary).
Eligible Designated Beneficiaries that are not the spouse include:
- Minor children of the original account holder (decedent).
- Those that are chronically ill.
- Those that are permanently disabled.
- Those that are not more than 10 years younger than the original account holder (ie – a sibling or friend that is age 60 when the account holder was age 69).
Designated Beneficiaries
- If you do not meet the requirements to be considered an Eligible designated beneficiary, then if the account holder died after 2019, you will be required to fully distribute all assets by the end of the tenth year after the year the account holder died.
- Note: If the original account holder did not take an RMD in the year of death and they were required to, an RMD must be taken from the account by 12/31 of the year the original account holder died.
Eligible Designated Beneficiary Options (other than a spouse)
Traditional: Non-spouse inherits
- If you inherit a Traditional, Rollover, SEP, or SIMPLE IRA and are considered to be an Eligible Designated Beneficiary (other than a spouse) you have several withdrawal options.
If the account holder was under 72, these are your choices:
Account type | You transfer the assets into an Inherited IRA held in your name. |
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Money is available |
RMDs must begin no later than December 31 of the year after death. |
Other considerations |
Note: If the Eligible designated Beneficiary is the minor child of the deceased account holder, the life expectancy method of distribution is no longer available when the child turns that age of majority. At that point, the distribution option is required to switch to the 10 year method below and all remaining assets need to be distributed by the end of the 10th year after the minor turns the age of majority.
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Account type | The assets are transferred into an Inherited IRA held in your name. |
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Money is available | At any time up until 12/31 of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed. |
Other considerations |
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Account type | None. All assets in the Inherited IRA are distributed to you. |
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Money is available | All at once. |
Other considerations |
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If the account holder was OVER 72, these are your choices:
Account type |
You transfer the assets into an Inherited IRA held in your name. |
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Money is available |
Note: If the original account holder did not take an RMD in the year of death, an RMD must be taken from the account by 12/31 of the year the original account holder died. |
Other considerations |
Note: If the Eligible designated Beneficiary is the minor child of the deceased account holder, the life expectancy method of distribution is no longer available when the child turns that age of majority. At that point, the distribution option is required to switch to the 10 year method below and all remaining assets need to be distributed by the end of the 10th year after the minor turns the age of majority.
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Account type | None. All assets in the IRA are distributed to you. |
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Money is available | All at once. |
Other considerations |
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Roth IRA: Non-spouse inherits
If you inherit a Roth IRA and are considered to be an Eligible Designated Beneficiary (other than a spouse) you have several withdrawal options.
Account type |
You transfer the assets into an Inherited Roth IRA held in your name. |
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Money is available |
Required Minimum Distributions (RMDs) are mandatory and distributions must begin no later than 12/31 of the year following the year of death. |
Other considerations |
Note: If the Eligible designated Beneficiary is the minor child of the deceased account holder, the life expectancy method of distribution is no longer available when the child turns that age of majority. At that point, the distribution option is required to switch to the 10 year method below and all remaining assets need to be distributed by the end of the 10th year after the minor turns the age of majority.
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Account type | The assets are transferred into an Inherited Roth IRA held in your name. |
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Money is available | At any time up until 12/31 of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed. |
Other considerations |
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Account type | None. All assets in the Roth IRA are distributed to you. |
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Money is available | All at once. |
Other considerations |
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Roth IRA: Spouse inherits
If you are inheriting a Roth IRA as a spouse, you have several options—including opening an Inherited IRA.
Account type | You transfer the assets into your own existing or new IRA. |
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Money is available | At any time, but earnings generally will be taxable until you reach age 59½ and the five-year holding period has been met. |
Other considerations |
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Account type | You transfer the assets into an Inherited Roth IRA held in your name. |
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Money is available |
Required Minimum Distributions (RMDs) are mandatory, and you have the option to postpone distributions until the later of:
|
Other considerations |
|
Account type | The assets are transferred into an Inherited Roth IRA held in your name. |
---|---|
Money is available | At any time up until 12/31 of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed. |
Other considerations |
|
Account type | None. All assets in the Roth IRA are distributed to you. |
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Money is available | All at once. |
Other considerations |
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Lastly, Beneficiary Assignment takes president over Will.
The beneficiary designation, assuming it names you directly, supersedes any provision in the will. Even if the will states that an IRA rollover or an IRA should be left to the estate, the beneficiary designation takes precedence.
If you have inherited an Individual Retirement Account (IRA) from a parent or any other relative that named you a beneficiary of the account, you do not need to turn the IRA account over to the estate regardless of what the will says or how the executor interprets the will.
If the will asks for “cash on hand” to be distributed among family members, this does not include the IRA account. Under no circumstances would you be required to provide the executor with the proceeds from the IRA.
If you have any questions, please reach out to us at info@cosnerfg.com.
Disclosures:
Some of this content was provided by Charles Schwab.
This material is for informational purposes only and is not investment, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. Triad Advisors, LLC does not provide tax or legal advice. For tax advice, consult your tax professional.
Sources:
Remaining Single Life Expectancy Table: https://www.fidelity.com/building-savings/learn-about-iras/irs-single-life-expectancy-table
https://www.irs.gov/pub/irs-tege/uniform_rmd_wksht.pdf
https://www.fidelity.com/building-savings/learn-about-iras/inherited-ira-rmd