Family & Legacy

What Happens When I Inherit an IRA?

An inherited IRA is not the same as your own IRA, and it is not the same as inheriting a bank account. It comes with its own set of distribution rules, deadlines, and tax consequences.

The most important factor is your relationship to the original owner. A surviving spouse generally has options that no one else has. Adult children, other relatives, and non-individual beneficiaries such as trusts each face different rules.

If there is one message in this guide, it is this: pause before withdrawing anything. Decisions made in the first weeks — often with good intentions — can create tax bills that were entirely avoidable.

This may be worth discussing if…

You have been named as the beneficiary of an IRA or employer retirement plan
You are a surviving spouse deciding how to handle your spouse's retirement accounts
You inherited an account and haven't yet moved or retitled it
You're unsure whether distributions are required, and by when
The account was left to a trust rather than to an individual
You inherited an account some time ago and haven't reviewed the requirements

Things to consider

Both sides of the decision, laid out plainly.

Spouse versus non-spouse is the dividing line

Surviving spouses generally have options — including treating the account as their own — that are not available to other beneficiaries. Those choices have different consequences for timing and access.

Distribution timing rules apply

Non-spouse beneficiaries are typically subject to rules requiring the account to be emptied within a defined period, and in some cases annual distributions along the way. The specifics depend on the account type, the owner's age at death, and your beneficiary classification.

Traditional versus Roth changes the tax picture

Distributions from an inherited traditional IRA are generally taxable as ordinary income. Inherited Roth distributions are typically tax-free, though distribution timing rules still apply.

Titling the account correctly matters

Inherited accounts must be titled in a specific way. Moving the money into your own name or your own account incorrectly can trigger an immediate, fully taxable distribution.

Lump-sum distributions deserve careful review

A lump-sum distribution can create a significant one-year tax bill and should be evaluated against the available alternatives.

Certain beneficiaries have different rules

Minor children of the owner, disabled or chronically ill individuals, and beneficiaries close in age to the owner may be treated differently. Trusts as beneficiaries add another layer.

Don't overlook your own beneficiaries

Once you have an inherited account, it needs beneficiary designations of its own.

Questions to ask Rob

What are my options given my relationship to the original owner?
How should distributions be spread out to manage the tax impact?
How should this money be invested given when it must be withdrawn?
How does this inheritance change my own retirement plan?
What paperwork needs to happen, and in what order?

Questions to discuss with your tax or legal professional

Which distribution rules apply to my specific beneficiary classification?
What is the deadline for the first required distribution, if any?
How will distributions affect my tax bracket in each year?
Are there estate or state-level tax matters I need to address?
If the account was left to a trust, how does that change the requirements?

Key takeaway

Do nothing hasty. Confirm your beneficiary classification and the applicable distribution rules before any money moves — retitling errors and lump-sum withdrawals are the two most expensive and most common mistakes.

Still have questions?

Every situation has details a general guide can't cover. A short conversation is usually the fastest way to sort out what applies to you.

Schedule a Conversation With Rob

This material is provided for general informational and educational purposes only and should not be construed as individualized investment, tax, accounting, or legal advice. Individual circumstances vary, and strategies discussed may not be appropriate for every investor. Wealthspan Investment Management, LLC does not provide legal or tax advice. Clients should consult their attorney, tax professional, and financial advisor regarding their individual circumstances. Investing involves risk, including possible loss of principal.