Ira Account Inheritance
The answer to that question depends on whether you inherited the IRA account from your spouse or someone other than your spouse, such as your parent, sibling, or close friend. You have more options if you inherited the IRA account from your spouse.
If you inherited an IRA from your spouse, you can:
- Treat the inherited IRA as your own IRA. You become the named account holder and you can make new contributions to the account. The required minimum distribution will be calculated with you as the owner beginning with the year you become the owner.
- Roll the inherited IRA assets into an IRA, 401(k), or 403(b) account that you already own.
- Treat yourself as the beneficiary of the inherited IRA. You can then elect to take the distributions based on your, or the original account owner’s, life expectancy or over a five year period.
- Take a lump-sum distribution. Be aware that you may incur taxes on the distribution, however, you should not incur an early withdrawal penalty even if you are under the age of 59 ½.
- “Disclaim” or “renounce the inheritance. In some circumstances, you may not want to take ownership of the IRA for estate or tax purposes. Be sure to consult with an attorney before making this decision.
If you inherited an IRA from someone else, you have fewer choices.
- You cannot treat an IRA inherited from anyone other than your spouse as your own. Rather, you can transfer the assets into an inherited IRA account in your name, but you cannot make any new contributions.
- If you inherit a traditional or Roth IRA, required minimum distributions are mandatory and will begin no later than December 31 of the year following the death of the original account owner. These distributions may have tax consequences.
- You can take a lump-sum distribution. Be aware that you may incur taxes on the distribution, however, you should not incur an early withdrawal penalty even if you are under the age of 59 ½.
- You can disclaim or renounce the inheritance, if appropriate. Be sure to consult with an attorney before making this decision.
No matter who the IRA was inherited from, you should discuss your options with a financial professional, accountant, and possibly an attorney before you make any decisions. For additional information on inherited IRAs, visit FINRA’s website.