Can a Beneficiary IRA Be Rolled?

by Jane Meggitt

If you are the beneficiary of an inherited individual retirement account (IRA), whether or not you can roll over the IRA depends on your relationship to the decedent. If you are the surviving spouse, the Internal Revenue Service allows beneficiary rollovers. If you not the surviving spouse, rollovers are not an option.

Spousal Inherited IRAs

A surviving spousal beneficiary may roll the inherited IRA into his or her own account, whether an IRA or other qualified retirement plan, within 60 days of the spouse's death. The spouse may also change the title of the inherited IRA so it becomes their own. If the spouse makes any contributions to the inherited IRA or does not take required minimum distributions for one year after the spouse's death, for IRS purposes the spouse has chosen to treat the inherited IRA as their own. Surviving spouses may also use the options available to non-spousal beneficiaries.

Non-Spousal Beneficiaries

Non-spousal beneficiaries of inherited IRAs may take required minimum distributions by the last day of the year in which the decedent died. Determine the amount of the required minimum distribution by dividing the fair market value of the IRA as of December 31 by your age in the IRS' single life expectancy table. If you do not take the required minimum distribution in a timely manner, the IRS may levy a penalty of 50 percent on the amount that you failed to withdraw.

Trustee-to-Trustee Transfer

Although non-spousal beneficiaries cannot roll over the inherited IRA, there is an option of a trustee-to-trustee transfer. In this scenario, the IRA to which the inherited assets are moved is set up by the fiduciary institution in the decedent's name, with your name as the beneficiary. Although you cannot make additional contributions to this account, no taxes are owed until you as the beneficiary begin taking distributions.

Roth IRA Option

If the inherited account is a Roth IRA rather than a traditional IRA, non-spousal beneficiaries have an additional choice with the IRS five-year rule. The inheritors may withdraw any amount of the assets at any time, as long the total balance in the IRA is withdrawn by December 31 of the fifth anniversary of the decedent's death. The IRS waives penalties for required minimum distributions as long as the withdrawals are made within the proper time frame and the account is closed within the five-year limit.

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