Inherited IRAs

Inheriting a traditional IRA? Unless you’re a surviving spouse, don’t delay. There are rules to follow, or face big penalties.

Written by Laurel Kenner / July 22, 2022

Quick Bites

  • The IRS has strict rules on timing and amounts of withdrawals for inherited traditional Individual Retirement Accounts.
  • Except for spouses who are sole beneficiaries, the rules have many variables depending on when the IRA owner died and who’s inheriting.
  • The rules are complex and the penalties can be quite severe, so inheritors should consult a tax expert.

If you’ve inherited an IRA, you should probably ask for help. For spouses, things are a little less complicated. For most others, there’s nothing clear and easy about inheriting an IRA and you must be wary of the tax man. You could pay dearly if you’re not careful. Or you might miss out altogether.

Inside this article

  1. What’s an IRA?
  2. Understanding the inherited IRA
  3. Rules for beneficiaries
  4. Watch out for the IRS!
  5. And be alert to timing

What’s an IRA?

An IRA is an individual retirement savings account that lets investments grow tax-free until you reach your post-work years. But the devil will take his due, and sooner or later the tax bill will come.

IRAs come in two flavors:

  • Traditional: You don’t pay tax on income you put in.

  • Roth: You pay tax on your income and make investments using what’s left over.

If you choose the traditional type, you pay tax down the road when you make withdrawals. That could be a good or bad thing, depending on your tax bracket when you retire.

If you choose the Roth type, you pay taxes when you contribute and none when you make withdrawals. Again, depending on your tax bracket, this could be the way to go.

Both types let earnings on investments made with money in IRAs grow tax-free.

Learn More: Traditional IRA vs Roth IRA

Understanding the inherited IRA

In short, it’s not easy to understand the rules of an inherited IRA.

“If you inherited an IRA such as a traditional, rollover IRA, SEP IRA, SIMPLE IRA, then the rules around [required minimum distributions] RMDs fall into 3 categories: spouses, non-spouses, and entities (such as trusts, estates, or charities),” according to Fidelity. “If you don't take the RMDs from your account, you will be subject to a penalty equal to 50% of the amount that should have been withdrawn.”[7]

Read that again: half of what you should have withdrawn will be swept away and into the pockets of the taxman.

Okay, let’s go through the rules of spouses and non-spouses:


If you inherited an IRA from your spouse, you can move the money into your own IRA or into an inherited IRA.

  • Moving it into your own IRA: It’s a good thing if you’re not yet 72 but your spouse was. You can stretch out the tax-deferral of IRA assets by delaying distributions until you reach age 72. However, it’s not a good thing if you are under age 59½, and you intend to take a distribution from your IRA because you will have to pay the 10% early withdrawal penalty in your IRA.

  • Moving it into an inherited IRA: If you move your money into an inherited IRA, you withdraw RMDs based on your age. There is no 10% withdrawal penalty.


If you move your money into an inherited IRA or Roth IRA, you will need to fully distribute your account within 10 years following the death of the original owner. There are, of course, exceptions if you are considered an eligible designated beneficiary (more on that below), in which case you can still withdraw RMDs based on your age.

Reach out for help

The rules, as we’ve made clear, are not easy to understand. At its core, you should understand that when you inherit an IRA and you are not a spouse or eligible beneficiary (again, more on that later): “All distributions must be made by the end of the 10th year after death, except for distributions made to certain eligible designated beneficiaries,” according to the IRS.

In other words, you do not have all the time in the world to tap into those funds and you may be subject to a 50% penalty if you don’t move quickly enough.

Of course, there are exceptions to this, so we would urge you to contact a highly-trained professional and expert in inherited IRAs to handle this situation.

To make matters worse, as of 2022, rules on distributions are in the process of changing. Don’t try to pinch pennies by depriving yourself of an expert who keeps up to date on the latest developments. Let’s dig into that business.

Rules for beneficiaries

Naturally, the government doesn’t want to wait forever to start collecting taxes on the amounts withdrawn from non-Roth IRAs, hence the required minimum distributions (RMDs).

These RMDs differ for different sorts of beneficiaries.

As of 2022, the required minimum distribution rules are in flux. That’s because the IRS is in the process of preparing rules to implement the Setting Every Community Up for Retirement Enhancement (SECURE) of 2019, which modifies requirements for retirement plans.

For the moment, the rules in the draft are the ones that apply, according to a June 2022 article in Trusts & Estates by tax experts Bruce D. Steiner and Denise Appleby.

The current draft creates two types of beneficiaries:

  • The first group can use IRS life expectancy tables to figure out when and how much to withdraw (and be taxed on). This group includes surviving spouses, disabled or chronically ill beneficiaries, and other inheritors who aren’t more than 10 years younger than the deceased (e.g., no trophy girlfriends).

  • Minor children can use the life expectancy tables until they’re 21, at which point they get 10 years to withdraw the rest.

  • Other beneficiaries must withdraw all the funds (and pay the taxes) within 10 years. Trusts follow yet another timetable.[1]

The simplest scenario is when you’re the sole beneficiary of your deceased spouse’s IRA. In that case, you treat the account as your own or treat yourself as the beneficiary. You can wait until age 72 to start taking distributions, thereby kicking your tax bill down the road to a time when you might not have as much income.

Spouses can even roll over the inherited IRA to a qualified retirement plan, but check with your adviser on the details.

Watch out for the IRS! Taxes and the inherited IRA

Experts say the absolute worst thing to do is to withdraw the entire sum in an inherited IRA into your own bank account. That will put you in tax hell.

Remember that you must pay estate tax on the IRA, though you may get a credit offsetting the tax on your withdrawals. [2]

What Are the Roth IRA Withdrawal Rules?

What Are the Roth IRA Withdrawal Rules?

Before you tap this tax-advantaged retirement account, make sure you know when a withdrawal can trigger taxes and penalties.

Find out more

And be alert to timing

The IRS takes the rules on required minimum distributions very seriously. Remember, it has been waiting a long time to collect those deferred taxes!

Penalties can be quite severe. Failing to take the required minimum distribution can result in a 50% excise tax for that year.[3]

For the year of death, the required minimum distribution is the same as what the IRA account owner would have received. In following years, it depends on the timing of the original IRA and the type of beneficiary.[4,5,6]

Article Sources
  1. “Proposed RMD Regulations Interpret the SECURE Act,” Bruce D. Steiner and Denise Appleby, Trusts & Estates, pp. 58-61, June 2022.
  2. “Publication 590-B (2021), Distributions from Individual Retirement Arrangements (IRAs),” Internal Revenue Service.
  3. “Publication 590-B (2021), Distributions from Individual Retirement Arrangements (IRAs),” Internal Revenue Service.
  4. “What’s an RMD?” Vanguard.
  5. “Retirement Topics — Required Minimum Distributions (RMDs),” Internal Revenue Service.
  6. “Publication 590-B (2021), Distributions from Individual Retirement Arrangements (IRAs), For use in preparing 2021 Returns,” Internal Revenue Service.
  7. “RMD rules for inherited IRAs.” Fidelity.

About the Author

Laurel Kenner

Laurel Kenner

Laurel is a seasoned, award-winning journalist with over 20 years of experience. She is an accomplished financial commentator and co-author of Practical Speculation, a book on statistical analysis in investment. Laurel brings clarity and context to writing and is skilled at making complex issues easy to understand.

Full bio

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