Inherited IRA FAQ

What is an Inherited IRA?

An inherited IRA allows a spouse or non-spouse beneficiary of an IRA to keep his inherited IRA assets tax-deferred until the IRS requires the funds to be distributed. When the account holder dies, a spouse beneficiary may either transfer the assets into an inherited IRA, complete a spousal transfer and treat the assets as his/her own. A non-spouse beneficiary may transfer the assets into an inherited IRA in his/her own name, and begin taking distributions on a distribution schedule based on his life expectancy.

Who can open an Inherited IRA?

Any spouse or non-spouse beneficiary of a Traditional, Rollover, SEP, SIMPLE or Roth IRA can open an Inherited IRA. With an Inherited IRA, the assets can remain tax-deferred - until IRS regulations require that they be withdrawn.

If I am a non-spouse beneficiary, can I just roll the IRA assets I inherit into an existing IRA account?

No, only spouse beneficiaries can treat inherited IRA assets as their own by transferring the assets into an existing or new (non-inherited) IRA.

Can I make additional contributions to my Inherited IRA?

No, contributions to Inherited IRAs are not permitted.

What are the rules for taking distributions from an Inherited IRA?

A beneficiary must first transfer the funds into a beneficiary IRA account. If he/she chooses not to take a lump sum distributions, there are several different options governing the amount and time frame of the distributions depending on several factors such as age, type of IRA, and type of beneficiary.

When can I take money out of my Inherited IRA?

You can make redemptions from an Inherited IRA at any time after it is re-registered into your own name.

Am I required to take money out of my Inherited IRA?

As the owner of an inherited IRA you may be required to either liquidate the account within five years of the December following the original owner’s death OR to choose by September of the year following the original owner’s death to take substantially equal payments over the longer of yours or the original owner’s life expectancy.

What is the deadline for establishing separate “inherited IRAs” so that each beneficiary can use his/her own life expectancy to measure MRDs?

The deadline is Dec. 31 of the year after the year the IRA owner died. The beneficiaries can split up an inherited IRA at a later date; however, a division occurring after the above deadline would not be effective to change the applicable life expectancy for measuring MRDs. All beneficiaries would have to use the oldest beneficiary’s life expectancy to measure MRDs if the “separate accounts” are not established by the end of the year after the year of death.