- The surviving spouse may treat the inherited IRA as her own or roll it over into her own IRA or qualified retirement account. She may also use the account to make qualified charitable distributions if using either of these options. If eligible, she may continue to make contributions to the account. None of these options are available to non-spousal beneficiaries, but the spouse may use a non-spousal option if so desired.
- Any non-spousal beneficiary has limited choices for the account under Internal Revenue Service regulations on inherited IRAs. Under a trustee-to-trustee transfer, the account is maintained in the decedent's name for the benefit of the designated beneficiary. Taxes are not owed on the inherited IRA until the beneficiary receives distributions. The beneficiary has two basic options for receiving distributions without IRS penalty: taking required minimum distributions or using the five-year rule.
- IRA beneficiaries must take required minimum distributions from any inherited IRAs, including Roth IRAs. Although the original account owner of a Roth IRA was not subject to mandatory distributions, this is not true for beneficiaries. The beneficiary of an inherited IRA must begin taking distributions based on his life expectancy, according to the IRS's single life expectancy table, by the last day of the year of the fifth anniversary of the decedent's death. If the decedent was already taking required distributions from a traditional IRA, this is the only method you can use. If you fail to take required minimum distributions, the penalty is 50 percent of the amount that should have been withdrawn.
- If the decedent did not reach the age of 70 1/2 and was not taking required distributions, the beneficiary may use the five-year rule to cash out the account and not face penalties from the IRS for not taking required minimum distributions. Under this rule, if the beneficiary withdraws all assets from the account by December 31 of the fifth year following the decedent's death and the account is closed, penalties are waived. Assets may be removed in any amount at any time during this five-year period and may also be a lump sum distribution.
Spousal Beneficiary
Other Beneficiaries
Required Minimum Distributions
Five-Year Rule
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