How to Avoid the Headache of Inherited IRAs

By Alisha Bennett


Inherited IRAs are often an enormous source of confusion for clients. Can they create a Check Book IRA with an Inherited IRA? Yes, they can. Can they commingle the funds in the Inherited IRA with their own IRA? Well, that depends.

Added to the mix is the fact that Inherited IRAs are titled differently than standard IRAs, which is an extremely important factor in any paperwork you complete, so make sure you review your Inherited IRA statement to steer clear of any mishaps in your documents.

Read the article below to avoid many other common mistakes when dealing with Inherited IRAs.

Here are five inherited IRA rules to help you make the most of the money you inherit and avoid a tax-time surprise:

1. Spouses can treat an inherited IRA as their own

If you’re the sole beneficiary of your spouse’s IRA, you can take over the account (also known as a spousal transfer or “assuming” the IRA), and the IRS will treat it as though it has been yours all along.

You can do this by designating yourself as the owner of the existing account, rolling the assets from the deceased’s account into an existing IRA (either a Roth or traditional account, as long as it has the same tax treatment), or setting up a new account for this purpose.

If you’re a spouse but not the sole beneficiary, see No. 2.

2. Non-spouse beneficiaries must establish inherited IRA accounts

A bit more administrative legwork is required if you’re a non-spouse inheriting an IRA (solely or when it’s left to multiple people) or a spouse who is not the sole beneficiary.

In all of these instances, the IRS doesn’t allow you to roll the money from an inherited IRA into one of your existing accounts. Instead, you’ll have to transfer your portion of the assets into a new IRA set up and formally named as an inherited IRA; for example, (Name of Deceased Owner) for the benefit of (Your Name). Be aware that no additional contributions are allowed in the new, inherited IRA account.

» Need to open a new account? See our picks for top IRA account providers

3. Most non-spouse beneficiaries must withdraw all of the money within 10 years

Thanks to the Secure Act, which was signed into law in December 2019, most (but not all) IRA beneficiaries must deplete an inherited IRA within 10 years of the account owner’s death. This applies to inherited IRAs if the owner died after Dec. 31, 2019.

There’s no limit on when or how often you withdraw money from the account, as long as the account is empty by the end of the 10 years. That is, you can choose to withdraw all of the money at once, you can leave it sitting there for a decade and then take it all out, or you can withdraw distributions over time. (Just note that with a traditional IRA, each withdrawal will be counted as income and subject to taxes in the year you make the withdrawal.)

There are some exceptions to the 10-year rule:

  • You inherited the IRA from your spouse. You can treat this account like it’s your own. If it’s a Roth, you don’t have to take any withdrawals in your lifetime. If it’s a traditional IRA, required distributions start when you reach age 72. (See more on traditional IRA distribution rules.)
  • You’re a minor child. You must start distributions, but they’ll be figured based on your life expectancy. That rule applies only until you reach the “age of majority,” which in most states is 18. At that point, you have 10 years to withdraw the entire account.
  • You’re chronically ill or disabled. You can stretch the IRA distributions out over your lifetime.
  • You’re not more than 10 years younger than the account owner. Withdrawals can be stretched over your lifetime.

4. Roth IRA beneficiaries can withdraw contributions tax-free at any time

Note here that we’re talking about Roth IRA contributions. Earnings from an inherited Roth can also be withdrawn tax-free, as long as the account had been open for at least five years at the time the account holder died. The so-called five-year rule is critical: If the Roth IRA was less than 5 years old at the original owner’s death, you’ll owe taxes on the earnings you withdraw. (Here are more details on the 5-year rule for Roth IRA withdrawals.)

» Read our tips for what to do if you inherit a Roth IRA

5. You’ll likely owe taxes when withdrawing money from a traditional IRA

As tempting as it might be to cash out the account (called a lump-sum distribution), tread carefully. Going the “Vegas or bust” option could leave you owing a hefty sum when it’s time to file your taxes. Withdrawals from a traditional IRA generally are taxable as income, at your income tax rate.


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