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Who is Eligible
Beneficiaries can include spouses or someone other than your spouse.
Beneficiary Options
Beneficiaries of inherited IRAs have the option of taking a full distribution of the IRA assets at any time. In such case the distribution will be includible in the beneficiary’s taxable income for the year of distribution. However, the beneficiary will not be subject to an early distribution penalty, which normally applies to IRA accountholders (under the age of 59 1/2), because death is an exception to the early distribution penalty. If not taking a full distribution, there are minimum distribution requirements that apply to beneficiaries. But, unless you need the money immediately, it's generally better to leave it in the IRA as long as possible to defer taxation and prolong the period of tax-deferred growth.
The IRA distribution options available generally depend on whether the IRA accountholder dies before or after April 1st of the year following the year in which he or she turned age 70 1/2. That's when the accountholder would have been required to start taking minimum distributions from the account. We'll refer to that date as the "required beginning date."
Beneficiary distributions typically depend upon whether the IRA holder died before or after his or her required beginning date, and whether or not the beneficiary is a spouse.
Spouses that inherit traditional IRAs can;
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Designate themselves as owner by making contributions or by not taking the minimum distribution for a year. |
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Transfer the account into an existing IRA in the name of the spouse. |
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Roll it over within 60 days into their Traditional IRA, qualified employer plan, annuity plan, tax sheltered annuity plan or qualified deferred compensation plan. |
Inherited IRAs from someone other than your spouse means;
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The beneficiary cannot treat the IRA as their own. |
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The beneficiary cannot roll over any amounts into the IRA or out of the IRA. |
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The beneficiary can transfer it to an IRA that is set up and maintained in the name of the deceased IRA owner for beneficiary’s benefit. |
Death of the IRA Accountholder Before the Required Beginning Date
The following are the distribution options for beneficiaries when death of the IRA accountholder occurs before they begin to withdraw their required minimum distributions, due upon attainment of age 70 1/2. Please refer to the following chart for distribution options.
Beneficiary Options
Spouse Beneficiary |
Nonspouse Beneficiary OR
Spouse Is Not Sole Beneficiary |
No Beneficiary OR Nonperson Beneficiary |
Five-year rule
Single life expectancy payments, recalculated while spouse is alive, begun later of 12/31 of year following year of death or 12/31 of IRA holder’s 70 1/2year; non-recalculated following beneficiary's death (set in year of spouse beneficiary’s death), begun by 12/31 of year following the year of the spouse beneficiary’s death
Treat deceased account holder’s IRA as your own
Transfer deceased account holder’s IRA into your own existing IRA
Distribute and rollover to your own IRA or eligible retirement plan
Default: Single life expectancy payments |
Five-year rule
Single life expectancy payments, based on oldest beneficiary, non-recalculated (set in year following year of death of IRA account holder), begun by 12/31 of year following year of IRA account holder’s death
Spouse beneficiary may distribute and rollover his/her share to their own IRA or eligible retirement plan
Default: Single life expectancy payments |
Five-year rule |
Death On or After Required Beginning Date
The following are the distribution options for beneficiaries when death of the IRA accountholder occurs after the required beginning date. Please refer to the following chart for distribution options.
Beneficiary Options
Spouse Beneficiary |
Nonspouse Beneficiary OR
Spouse Is Not Sole Beneficiary |
No Beneficiary OR Nonperson Beneficiary |
Longer of Single life expectancy payments based on spouse beneficiary, recalculated while spouse is alive, begun by 12/31 of year following the year of the IRA account holder’s death; non-recalculated following spouse beneficiary’s death (set in the year of death), begun by 12/31 of year following the year of the spouse beneficiary’s death
or Single life expectancy payments based on IRA holder, non-recalculated (set in year of death), begun by 12/31 of year following the year of IRA holder’s death
Treat deceased account holder’s IRA as your own
Distribute and roll over to own IRA or eligible retirement plan |
Longer of Single life expectancy payments based on oldest beneficiary*, non-recalculated (set in year following the year of death) begun by 12/31 of year following the year of the IRA account holder’s death or Single life expectancy payments based on IRA accountholder, non-recalculated (set in year of death), begun by 12/31 of year following the year of IRA accountholder’s death Spouse beneficiary may distribute and rollover his/her share to their own IRA or eligible retirement plan |
Single life expectancy payments based on IRA accountholder, nonrecalculated (set in year of death), begun by 12/31 of year following the year of IRA account holder’s death |
Distribution and Tax Guidelines
If you take distributions from your own IRA and the inherited IRA, if each has basis, two separate IRS Forms 8606 need to be completed to determine taxable and nontaxable portions.
A spouse can roll the distribution into another IRA to avoid including it as income.
Beneficiaries, due to income distribution of the decedent’s traditional IRA, can take certain estate tax deductions.
For more information, consult the Department of Treasury, Internal Revenue Service Publication 590 Individual Retirement Arrangements IRAs listed under Publications. |
