Distributions from an Inherited Traditional IRA

How Must I Take Distributions from the Traditional IRA I Inherited? This flowchart will guide you through the eligibility factors.

How Must I Take Distributions from the Traditional IRA I Inherited?

Inheriting a Traditional IRA comes with specific distribution rules you must follow. These rules depend on your relationship to the original owner and when they passed away. Following the proper guidelines ensures compliance with IRS requirements and helps you maximize the value of the inheritance.

If the original owner passed away in 2020 or later, the SECURE Act requires most non-spouse beneficiaries to withdraw the entire account within 10 years. This is known as the 10-year rule. You can take distributions at any time during this period, but the entire balance must be depleted by year 10 to avoid penalties.

Spouses inheriting a Traditional IRA have more flexibility. You can roll the inherited IRA into your own, delaying Required Minimum Distributions (RMDs) until you reach age 73. Alternatively, you can treat the IRA as inherited, taking distributions based on your life expectancy.

Beneficiaries

Eligible Designated Beneficiaries (EDBs), including minor children, disabled individuals, and beneficiaries not more than ten years younger than the original owner, can stretch distributions over their life expectancy. This option spreads tax liability over a longer period, reducing the annual tax burden.

Non-designated beneficiaries, such as estates or charities, have stricter rules. If the original owner was already taking RMDs, distributions must continue using the owner’s remaining life expectancy. If not, the five-year rule applies, requiring full distribution within five years.

Understand the tax implications of distributions. Withdrawals from a Traditional IRA are taxable as ordinary income. Consider consulting a financial advisor or tax professional to create a strategy that aligns with your financial goals and minimizes your tax burden.

By adhering to these rules, you can responsibly manage your inherited IRA while avoiding costly mistakes. Always review your options and consult experts to make informed decisions.

This article is educational only and is not intended to be investment, legal, or tax advice or recommendations, whether direct or incidental. Again, this is not investment advice. Consult your financial, tax, and legal professionals for specific advice related to your specific situation. Never take investment advice from someone who doesn’t know you and your specific situation. All opinions expressed in this article are those of the people expressing them. Any performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be directly invested in.