What Are the Rules for an Inherited IRA?
Inheriting an IRA can feel like a windfall and a maze at the same time, since the rules for what to do with the money depend heavily on who died, when, and who’s inheriting it.
The short answer
An inherited IRA is a retirement account passed to a beneficiary after the original owner’s death, and the withdrawal rules that apply depend on the beneficiary’s relationship to the deceased, the type of IRA involved, and rules set by the government that have changed more than once in recent years. Broadly, spouses get more flexible options, including treating the account as their own, while most non-spouse beneficiaries face a required timeline for emptying the account that’s shorter than what applied to the original owner.
How spouse and non-spouse rules differ
A surviving spouse who inherits an IRA typically has the option to roll it into their own IRA, effectively becoming the new owner, or to keep it as a separate inherited account with its own distinct rules, a decision that often ties into broader estate planning choices a household has already made. Non-spouse beneficiaries, such as adult children, siblings, or friends, generally cannot do that; they inherit the account as a distinct “inherited IRA” and must follow separate withdrawal requirements, most commonly a rule requiring the entire account to be emptied within a set number of years after death, subject to exceptions for certain beneficiaries such as minor children or those with a disability.
Why the type of original account matters
The rules also depend on whether the inherited account was a traditional or Roth IRA. Withdrawals from an inherited traditional IRA are generally taxable as ordinary income to the beneficiary, the same as they would have been for the original owner. Withdrawals from an inherited Roth IRA are generally tax-free if the original account met the requirements for qualified withdrawals, though the account may still be required to be emptied within the same general timeframe as an inherited traditional IRA. Because Roth and traditional accounts are taxed so differently, confusing the two when planning withdrawals can lead to an unnecessary tax bill.
Common mistakes beneficiaries make
One frequent misstep is treating an inherited IRA like a personal savings account and withdrawing haphazardly without a plan, which can create a large, avoidable tax bill in a single year if the beneficiary isn’t paying attention to the required timeline. Another is missing the deadline entirely, since penalties can apply to required amounts that go unwithdrawn. Because these rules are complex and have changed with legislation in recent years, and because naming the wrong beneficiary in the first place can complicate things further, beneficiaries are generally well served by reviewing the current requirements with a tax professional soon after inheriting the account, rather than assuming older rules still apply.
What to weigh when deciding on withdrawals
Beyond meeting any required timeline, beneficiaries often have some discretion over exactly when, within that window, to take money out, and that timing can matter for tax purposes. Spreading withdrawals across multiple years, when the rules allow it, can help avoid pushing a beneficiary into a higher tax bracket in any single year compared with withdrawing everything at once, the same basic concern that shapes required withdrawals from other retirement accounts. This is one more reason the specific type of account and the specific relationship to the original owner both matter before deciding on a withdrawal approach.
The bottom line
Inherited IRA rules hinge on the relationship between the beneficiary and the original owner, the type of account, and government rules that continue to evolve, so there’s no single answer that applies to everyone. Anyone who inherits an IRA benefits from confirming the current requirements early, since the deadlines and tax treatment involved are specific enough that guessing can be costly.