An Inherited IRA (Individual Retirement Account) is a type of retirement account that you receive when you are the beneficiary of someone else's IRA after they pass away.
Here’s what you need to know:
- Who can inherit an IRA?
- Spouses: Have more flexibility, including treating the IRA as their own.
- Non-spouses (children, friends, etc.): Must follow different withdrawal rules.
- Required Minimum Distributions (RMDs): The rules changed with the SECURE Act (2019) and SECURE Act 2.0 (2022). If the original owner died after 2019, most non-spouse beneficiaries must:
- Withdraw the entire account within 10 years (known as the 10-year rule).
- Some “eligible designated beneficiaries” (like minor children, disabled individuals, or those less than 10 years younger than the original owner) may take distributions over their lifetime instead.
- Taxes:
- Traditional Inherited IRA: Distributions are usually taxable as ordinary income.
- Roth Inherited IRA: Distributions are tax-free if the account was open at least 5 years.
- SIMPLE IRAs are pre-tax accounts, so distributions are taxable as ordinary income—just like traditional IRAs.
- You can’t contribute to an Inherited IRA. It’s strictly a vehicle for receiving and distributing inherited retirement assets—not for ongoing saving.
