Key takeaways

• When an IRA owner dies, the assets held in their account generally must be transferred into a new account, called an inherited IRA, or beneficiary IRA.
• Most non-spouse beneficiaries of IRAs inherited in 2020 or later must empty the account by the end of year 10, though rules vary between eligible and designated beneficiaries.
• Beneficiaries may need to take Required Minimum Distributions (RMDs) annually during the 10-year period, depending on when the original owner of the IRA died.

If you’ve inherited an Individual Retirement Account (IRA), it’s important to understand the complex rules and potential tax implications that may apply in your unique situation. As a beneficiary, the way you manage your inherited IRA will depend on the type of IRA inherited, your relationship to the deceased, and when they passed away.

What is an inherited IRA?

An inherited IRA, also known as a beneficiary IRA, is an account that is opened when someone inherits an IRA after the original owner dies. The person or organization that inherits the IRA is called a beneficiary. Beneficiaries are often spouses, children, or charitable organizations.

How does an inherited IRA work?

When an IRA owner dies, the assets held in their account generally must be transferred into a new account. This new account becomes the beneficiary’s inherited IRA. Spousal beneficiaries are the exception to this rule and can choose to take ownership of the existing IRA or open an inherited IRA.¹

Assets from employer-sponsored retirement plans, including 401(k) and 403(b) plans can also be transitioned directly to inherited IRAs. However, additional contributions cannot be made to an inherited IRA.

By regulation, the deceased owner’s name will remain in the account title. The title will also include the terms “beneficiary IRA”, “inherited IRA”, or “For the Benefit Of” (FBO) along with the recipient the account. Specific practices may vary from one IRA custodian to another.²

Read more: Roth vs. traditional IRAs: Which should I choose?

Inherited IRA rules for beneficiaries

If you are a beneficiary for an inherited IRA, your first instinct may be to simply collect the funds within the IRA by taking a lump sum distribution. But that may unnecessarily push your taxable income into higher tax brackets and ultimately sacrifice potential tax-deferred growth.

RMD rules are complex and require determination of multiple factors including identifying what type of beneficiary you may be, whether the original account owner died before or after their required beginning date or RBD (the date by which their RMDs must have commenced) and the type of IRA (i.e. Roth IRA, traditional IRA).

If you’re inheriting a traditional or Roth IRA, different distribution rules may apply. It’s always a good idea to discuss inherited IRAs with a financial professional, as every situation is unique.

Note that the rules described below are relevant for beneficiaries of accounts where the original account holder died in 2020 or later.³ Due to the SECURE Act, if you inherited an IRA on or after January 1, 2020, you may need to withdraw the balance of the account no later than the 10th anniversary following the calendar year of the IRA owner's death.⁴ If the IRA owner died on or after their required beginning date, annual RMDs may also apply during the 10-year period.

Read more: Required Minimum Distributions: What’s the deal on RMDs?

Spousal beneficiaries

Traditional IRA: Spouse inherits before RBD

If you inherit your spouse’s traditional IRA before their RBD date, options to consider include:

1. Assume ownership of the IRA: You can treat the IRA as if it was your own retirement account by naming yourself as the owner of the IRA or by transferring the assets into your existing IRA. The assets are available at any time, but a penalty may apply to withdrawals made before you reach age 59½.
2. Open an inherited IRA via the life-expectancy method: You transfer the assets into an inherited IRA for which you are the beneficiary. You must generally take RMDs from the latter of 1) the year the deceased would have reached their RBD or 2) 12/31 the year following death.
3. Open an inherited IRA via the 10-year method: You transfer the assets into an inherited IRA for which you are the beneficiary. The assets may remain in the account up until December 31 of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed.
4. Take a lump sum distribution: This option wouldn’t require establishing an Inherited IRA, and all assets will be distributed to you immediately. You will be responsible for paying income taxes on the distribution but will not be subject to the 10% early withdrawal penalty.

Read more: Spousal IRA: What it is & how it works

Traditional IRA: Spouse inherits after RBD

If you inherit your spouse’s traditional IRA after they had reached their RBD and were required to take RMDs, options you may consider include:

1. Assume ownership of the IRA: You can treat the IRA as if it was your own retirement account by naming yourself as the owner of the IRA or by transferring the assets into your existing IRA. You must take an RMD for the year of death (if the deceased did not already take it). The assets are available at any time, but a penalty will generally apply to withdrawals made before you reach age 59½, excluding the decedent’s year-of-death RMD.
2. Open an inherited IRA via the life-expectancy method: You transfer the assets into an inherited IRA for which you are the beneficiary. 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. Your annual distributions are spread over your single life expectancy (determined by your age in the calendar year following the year of death and reevaluated each year) or the deceased account holder's remaining life expectancy, whichever is longer.
3. Take a lump sum distribution: This option wouldn’t require establishing an Inherited IRA, and all assets will be distributed to you immediately. You will be responsible for paying income taxes on the distribution but will not be subject to the 10% early withdrawal penalty.

Roth IRA: Spouse inherits

If you inherit your spouse’s Roth IRA, you have a range of options including:

1. Assume ownership of the Roth IRA: You can treat the Roth IRA as if it was your own retirement account by naming yourself as the owner of the Roth IRA or by transferring the assets into your existing Roth IRA. The assets are available at any time, but a penalty will apply to earnings withdrawn before you reach age 59½ and before you satisfy the five-year holding period, if applicable.
2. Open an inherited Roth IRA via the 10-year method: You transfer the assets into an inherited IRA for which you are the beneficiary. The assets may remain in the account up until December 31 of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed.
3. Take a lump sum distribution: This option wouldn’t require establishing an Inherited IRA, and all assets will be distributed to you immediately. Earnings are not taxable unless the account is less than five years old at the time of the original owner’s death.

Read more: Roth IRA withdrawal rules

Non-spousal beneficiaries

If you inherit an IRA from someone other than your spouse, your first step will be to determine if you are an Eligible Designated Beneficiary or a Designated Beneficiary.

To be considered an Eligible Designated Beneficiary (other than a surviving spouse), you must be:

• A minor child of the deceased account holder
• Chronically ill or disabled
• Not more than 10 years younger than the deceased account holder-

If you do not meet the requirements to be considered an Eligible Designated Beneficiary, and the account holder died after 2019, you are considered a Designated Beneficiary. In this case you are required to:

• Fully distribute all assets by the end of the tenth year after the year the account holder died
• Take annual RMDs during the 10-year period if the IRA owner died on or after RBD.

Traditional IRA: Eligible Designated Beneficiary inherits before RBD

If you inherit a traditional IRA from someone other than your spouse and are an Eligible Designated Beneficiary, you cannot treat the IRA as your own. If you inherit before their RBD, your options may include:

1. Open a traditional IRA via the life-expectancy method: You transfer the assets into an inherited IRA in your name. You must begin taking an annual RMD over your life expectancy beginning no later than December 31 of the year following the original account holder's death. (Note that once a minor-child beneficiary reaches the applicable age of majority, the account generally must be fully distributed by the end of the tenth year following the year in which the child reaches that age).
2. Open a traditional IRA via the 10-year method: You transfer the assets into an inherited IRA for which you are the beneficiary. When the owner died before the RBD, annual distributions generally are not required during years 1 through 9 under the 10-year method, but the entire account must be distributed by December 31 of the tenth year after the year of death.
3. Take a lump sum distribution: This option wouldn’t require establishing an Inherited IRA, and all assets will be distributed to you immediately. You will be responsible for paying income taxes on the distribution but will not be subject to the 10% early withdrawal penalty.

Traditional IRA: Eligible Designated Beneficiary inherits after RBD

If you inherit a traditional IRA from someone other than your spouse and are an Eligible Designated Beneficiary, you cannot treat the IRA as your own. If you inherit after their RBD, your options may include:

1. Open a traditional IRA via the life-expectancy method: You transfer the assets into an inherited IRA in your name. You generally must begin taking annual RMDs by December 31 of the year following the original account owner's death. The distribution period is based on the longer of your remaining life expectancy or the deceased account owner's remaining life expectancy, as determined under the applicable IRS rules.
2. Take a lump sum distribution: This option wouldn’t require establishing an Inherited IRA, and all assets will be distributed to you immediately. You will be responsible for paying income taxes on the distribution but will not be subject to the 10% early withdrawal penalty.

Roth IRA: Eligible Designated Beneficiary inherits

If you inherit a Roth IRA from someone other than your spouse and are an Eligible Designated Beneficiary, remember: All Roth IRA owners are considered to have died before their RBD. Generally, inherited Roth IRA accounts are subject to the same required minimum distribution rules as inherited traditional IRA accounts, and Eligible Designated Beneficiary payout options depend on beneficiary category and the IRA owner’s required beginning date framework.

1. Life-expectancy method: Transfer the assets to an inherited Roth IRA established for your benefit. You generally must begin taking annual RMDs by December 31 of the year following the original account owner's death. The RMDs are generally calculated using your life expectancy under the applicable IRS rules.
2. 10-year method: You transfer the assets into an inherited Roth IRA established for your benefit. The assets may remain in the account up until December 31st of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed.
3. Take a lump sum distribution: This option wouldn’t require establishing an Inherited Roth IRA, and all assets will be distributed to you immediately. You will be responsible for paying income taxes for any taxable portion of the distribution but will not be subject to the 10% early withdrawal penalty.*

Non-designated beneficiaries

A non-designated beneficiary may be a charity, an estate or a trust. Certain trusts are permitted to treat the beneficiaries of the trust as the beneficiaries of the decedent’s IRA. If there is no designated beneficiary (including an estate, charity, or some trusts), the payout rule generally depends on whether the IRA owner died before or on/after the required beginning date.

• If the IRA owner died before the required beginning date, the account generally must be emptied by the end of the fifth year after the year of death.
• If the IRA owner died on or after the required beginning date, distributions are generally taken using the Single Life Expectancy Table based on the IRA owner’s age in the year of death (reduced by one each subsequent year).

How is an inherited IRA taxed?

The tax treatment of inherited IRAs can depend on the type of IRA owned by the deceased (traditional or Roth) as well as the type of beneficiary and withdrawal method selected, among other factors. Custodians of inherited IRAs must file Internal Revenue Service (IRS) Forms 1099-R and 5498 to report distributions and year-end values for tax purposes.⁵

Understanding when taxes are due and how they are calculated is crucial for beneficiaries to manage their tax liabilities effectively.

Traditional inherited IRAs

Distributions are generally taxable as ordinary income at the beneficiary’s current income tax rate. As traditional IRA funds are generally contributed pre-tax, withdrawals are subject to income tax. Early withdrawal penalties generally do not apply to RMDs from inherited IRAs, even if the beneficiary is under the age of 59 ½. Depending on the state in which the beneficiary lives, in, state income taxes may also apply in addition to federal taxes.

Read more: 2025 and 2026 tax brackets: New thresholds, same rates, paycheck impact

Inherited Roth IRAs

Distributions from an inherited Roth IRA are generally tax-free, provided that the original owner held the Roth IRA for at least five years before their death. This is because contributions to a Roth IRA are made with after-tax dollars, and any growth within the account is tax-free once the five-year holding period has passed. Depending on the state in which the beneficiary lives in, state income taxes may also apply in addition to federal taxes.

The bottom line

If you are a beneficiary and inherit an IRA, it’s important that you get a complete understanding of the relevant distribution requirements, your options, and the potential outcome of each available option for you and the inherited IRA. IRS Publication 590-B — Distributions from Individual Retirement Arrangements, contains detailed guidance to assist you in evaluating your options.⁶ Consider working with a fiduciary financial professional and/or a tax professional to assess the best course of action.