What Rules Apply to an IRA Inherited From a Parent?
A parent passes away, and among the paperwork is an IRA statement with your name now listed as beneficiary. Suddenly there’s a decision to make that has nothing to do with grief and everything to do with tax rules you’ve never had to think about before.
The short answer
An inherited IRA generally has to be emptied within a set number of years for most non-spouse beneficiaries, such as adult children, rather than held indefinitely the way the original owner could. The exact timeline, and whether annual withdrawals are also required along the way, depends on factors like whether the original owner had already started required withdrawals and whether the beneficiary qualifies for a longer payout schedule under certain exceptions. A surviving spouse generally has more flexible options than other beneficiaries, including treating the account as their own.
Why the rules differ from an ordinary IRA
An IRA — whether it functions as a substitute for a workplace 401(k) or as a supplement to one — is built around tax-deferred growth for the original owner, and that deferral doesn’t extend forever once the account passes to someone else. Unlike assets that pass through the probate process, most IRAs pass directly to whoever is named as beneficiary, which is part of why keeping beneficiary designations current — and knowing how to change the beneficiary listed on an old bank account — matters for account owners themselves, not just their eventual heirs.
How the timeline generally works for adult children
For most adult children inheriting a parent’s IRA, current rules generally require the entire account to be distributed within a set number of years following the owner’s death, commonly referred to as the 10-year rule in many cases. Whether distributions are also required in each of those years, rather than just by the end of the window, has depended on whether the original owner had already reached the age for required withdrawals before passing. This detail changes the math meaningfully, since spreading withdrawals across the full window versus taking one lump sum near the end produces very different tax outcomes.
Why the timing of withdrawals matters for taxes
Withdrawals from a traditional inherited IRA are generally treated as ordinary income in the year they’re taken, which means the timing can affect which tax bracket that income lands in. Taking a large distribution in a single high-earning year can push more of it into higher brackets than spreading withdrawals across several years might. A Roth IRA works differently, since qualified withdrawals are generally not taxed the same way, though the account still typically needs to be emptied within the applicable window. Because these decisions interact with the rest of a person’s tax picture, they’re often the kind of question people bring to a tax professional rather than deciding from general information alone.
Exceptions worth knowing about
Certain beneficiaries — including a spouse, a minor child of the original owner, someone with a qualifying disability or chronic illness, or someone not more than a decade younger than the original owner — have historically qualified for different treatment, sometimes allowing withdrawals stretched over their own life expectancy instead of the shorter window. These categories are specific, and don’t automatically apply just because a beneficiary feels they fit the spirit of one.
Worth remembering
Inheriting an IRA from a parent comes with a withdrawal clock that starts ticking whether or not the beneficiary feels ready to deal with it, and the exact rules depend on details like the original owner’s age, the type of account, and the beneficiary’s relationship to them. Reading the account paperwork carefully, and understanding how a 401(k) rollover works as a point of comparison, since the rules for inherited workplace accounts share some similar logic, can help make sense of a topic that’s easy to put off during an already difficult time. Given how much these details can change based on the specifics of a situation, this is an area where professional tax guidance tends to be worth the cost.