Inherited an IRA? Don't Assume You Know the Rules

Losing a loved one is hard enough without a stack of financial paperwork landing on your desk a few weeks later. If you've inherited an IRA, the decisions you make in the months ahead can affect your tax bill, so it's worth understanding your options before you act.

The rules, while a bit tangled, boil down to one main question: what type of beneficiary are you?

Spouses Get the Most Flexibility

If you've inherited an IRA from your spouse, you have the most choices. You can roll the assets into your own IRA, keep them in an inherited IRA, or even convert to a Roth. The right decision depends on your age, when you'll need the money, and your tax situation. These choices are hard to fully undo once made, so don't sit on this decision. If you're working through this, let's talk before you act.

Eligible Designated Beneficiaries: A Little More Room to Breathe

This group includes minor children, people who are disabled or chronically ill, and beneficiaries who are not more than 10 years younger than the original owner. If this is you, you can generally stretch distributions over your own life expectancy, which means the account can keep growing tax deferred for years to come.

Most Adult Children Fall Under the 10-Year Rule

This is the category that catches the most people off guard. If you're a non-spouse beneficiary, such as an adult child inheriting from a parent, you'll likely need to empty the account within 10 years of the original owner's death. Within that window you have flexibility. Take it all at once, spread it out evenly, or wait until year 10 and take it in one lump sum. Just know that waiting until the end often means a large tax bill all at once, so plan ahead rather than let the calendar make the decision for you.

One wrinkle to watch for: if the original owner had already started taking required minimum distributions, you may also need to take annual withdrawals in years one through nine, not just by year 10.

If that sounds familiar, it's because the IRS waived the penalty for skipping those annual withdrawals for several years while the rules were being finalized.

⭐ 5 Star Tip: That waiver no longer applies as of 2025

Annual distributions are required again, and the full account must still be emptied by the end of year 10.

Estates and Charities Work Differently

When an IRA is left to an estate or charity, there's no life expectancy to stretch payments over, so the timeline is shorter, typically five years. Charities don't pay income tax on what they receive, though, which makes an IRA a tax-smart way to leave a legacy gift.

Don't Forget About Roth IRAs

The beneficiary categories are the same for Roth accounts, but the tax treatment is a different story. Qualified withdrawals are generally tax free, so there's often a strong incentive to let those assets stay invested as long as the rules allow. Whatever type of account you've inherited, talk to a tax professional before taking any distribution. The withdrawal schedule you choose can mean the difference between a manageable tax bill and an unpleasant surprise come April.

The Real Takeaway

None of this matters if the beneficiary form is outdated or missing in the first place. If you're an IRA owner reading this, do your beneficiaries a favor and review your designations regularly. It's a five-minute task that can save your family real confusion later.

If you've recently inherited an IRA, or it's been a while since you checked your own beneficiary designations, let's talk. Navigating these rules alongside your broader financial picture is exactly what we're here for.

👉 Are you looking for a fee-only advisor to work with? Book your free discovery call and get started.

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John Piershale, CFP®, AEP®

Fee-Only and Fiduciary Advisor

NAPFA-Registered Financial Advisor

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This article is for educational purposes only and is not legal or tax advice. Please consult an attorney or tax advisor regarding your personal situation. Piershale Wealth Management, LLC is an Investment Adviser registered with the State of IL and in other jurisdictions where exempt from registration. All views, expressions, and opinions included in this communication are subject to change. This communication is not intended as an offer or solicitation to buy, hold or sell any financial instrument or investment advisory services. Any information provided has been obtained from sources considered reliable, but we do not guarantee the accuracy or the completeness of any description of securities, markets or developments mentioned. The information contained herein is intended to be used for educational purposes only and is not exhaustive. Diversification and/or any strategy that may be discussed does not guarantee against investment losses but are intended to help manage risk and return. If applicable, historical discussions and/or opinions are not predictive of future events. The content is presented in good faith and has been drawn from sources believed to be reliable. The content is not intended to be legal, tax or financial advice. Please consult a legal, tax or financial professional for information specific to your individual situation.