Inherited IRAs

If you inherit an IRA from your deceased spouse, you have three primary choices:

• Treat the IRA as your own, naming yourself as the owner — effectively resetting the account as if it were always yours
• Roll it over into your own IRA or a qualified employer plan (403(b), etc.) — again treating it as your own with your own beneficiary designations
• Treat yourself as the beneficiary of the plan, keeping it as an inherited IRA

Rolling the IRA into your own account resets everything — you can name your own beneficiary, manage it as your own account, and delay RMDs based on your own age. The right choice depends on your age, whether the deceased had begun RMDs, and your cash flow needs.

Note: The IRS uses age 73 (born 1951–1959) or 75 (born 1960+) under SECURE 2.0 for RMD purposes — not the age 72 referenced in older guidance. The rules differ substantially for Roth IRAs vs. traditional IRAs, so review your specific situation carefully.

Eligible designated beneficiaries (minor children, chronically ill, disabled, or within 10 years of age of the owner) have two options:

• Transfer assets into an inherited IRA in your name and take RMDs over your life expectancy or that of the deceased owner
• Transfer into an inherited IRA and take distributions over 10 years, fully liquidating by Dec. 31 of the 10th year after the owner’s death

Designated beneficiaries (everyone else, except spouses) may only use the 10-year rule. The account must be fully withdrawn by Dec. 31 of the year that is 10 years after the original owner’s death.

When deciding how to take withdrawals, balance the legal requirements against the tax impact of withdrawals and the advantage of letting remaining funds continue to grow tax-deferred.

If the original account owner was required to take RMDs and had not yet taken the distribution for the year of death, it becomes the beneficiary’s responsibility to take that distribution before year-end. Missing it triggers a 25% excise tax on the undistributed amount.

This is a serious risk when someone dies early in the calendar year — they almost certainly hadn’t taken their annual RMD yet. If you are not aware you own the account, you may not find out until after Dec. 31, when it is already too late.

If the deceased was not yet required to take distributions, there is no year-of-death RMD obligation. Confirm the owner’s RMD status as one of your first steps after inheriting.

An inherited traditional IRA is taxable — any amount you withdraw is subject to ordinary income tax. (An inherited Roth IRA is generally free of taxes on the principal.) However, if the estate was subject to the federal estate tax, beneficiaries of the IRA are entitled to an income-tax deduction for estate taxes paid on the IRA assets.

You do not have to have been the person who paid the estate tax — only that someone did. For 2025, estates worth more than $13.99 million are subject to the federal estate tax (up from $13.61 million in 2024). If the estate was below this threshold, the IRD deduction does not apply. This is a deduction many beneficiaries miss entirely — consult a tax professional before filing.

Beneficiary designation forms control where IRA assets go at death — and they override whatever a will says. An ambiguous, incomplete, or missing form can create serious legal and financial problems for the people you intended to benefit.

If there is no designated beneficiary form and the account passes to the estate, beneficiaries may be forced to withdraw the money over a five-year period — compressing the tax impact and eliminating all flexibility.

Review and update your beneficiary designations after every major life event — marriage, divorce, birth of a child, or the death of a named beneficiary. Contact your IRA custodian to confirm your forms are on file and current. Do not assume they are.

It is possible to name a trust as the primary beneficiary of an IRA — and it is also possible for this to go seriously wrong. Done incorrectly, a trust can unintentionally limit the options of beneficiaries and trigger accelerated distribution rules.

If the trust provisions are not carefully drafted, some IRA custodians will be unable to see through the trust to identify the qualified beneficiaries. When that happens, the IRA’s default accelerated distribution rules apply — potentially forcing faster, larger, more taxable withdrawals than intended.

Malpractice in this area is irreversible. You cannot argue abatement of penalty and interest in an inherited IRA case. The only recourse is a private letter ruling from the IRS — which costs approximately $6,000–$10,000 in fees and takes roughly six months to receive. Get the drafting right the first time.

One of the less obvious benefits of the Roth IRA is how it simplifies inherited IRA tax issues. In general, the Roth IRA allows you to pass assets to heirs income-tax-free — they will not be taxed on the principal or on earnings that were already in the account when the five-year holding period has been met.

This matters because a large traditional IRA inherited under the 10-year rule can create an enormous income tax bill for beneficiaries. The same account as a Roth IRA would not. If you are considering converting traditional IRA funds to Roth during your lifetime — paying taxes now to spare heirs later — inherited IRA simplification is a meaningful part of the calculus.

Key nuance for spouses: If a surviving spouse inherits a Roth IRA and treats it as their own, any withdrawn earnings will be taxable until the spouse reaches age 59½ and the five-year holding period on the account has been met.

For any lump-sum distribution from an inherited Roth IRA, the withdrawal is tax-free as long as the five-year holding period was met by the original owner. If not, any withdrawn earnings are taxable.