Rules for Non-Spousal Inherited IRAs

by Jane Meggitt

The Internal Revenue Service (IRS) has different regulations for individual retirement accounts inherited by a surviving spouse and non-spousal beneficiaries. Non-spousal beneficiaries have fewer options than a husband or wife -- they cannot roll the inherited IRA into their own IRA accounts, as can the surviving spouse. If you are the beneficiary of a non-spousal IRA, be sure to make any decision by December 31 of the year of the decedent's death.

Trustee to Trustee Transfer

While non-spousal beneficiaries cannot transfer additional funds or roll over amounts in or out of the inherited IRA, the IRS permits a trustee-to-trustee transfer. To do this, the IRA into which assets are moved must be set up with the financial institution in the name of the decedent owner, in your benefit as the beneficiary. No taxes are owed until you start taking distributions from the IRA.

Required Minimum Distributions

Inherited IRA regulations for non-spousal beneficiaries also depend on whether the decedent was already taking required minimum distributions (RMD). While Roth IRAs do not require RMDs, those owning traditional IRAs must take RMDs by the age of 70 1/2. If the decedent was taking RMDs, that amount must be taken out of the account as income for the decedent's year of death before passing to the beneficiary, and counts as estate income.


If the decedent was not yet taking RMDs, or had not reached the age where distributions were required, the non-spousal beneficiary has several options. He may choose to have the entire amount of the IRA distributed to him, or if the account is a Roth IRA, have the entire amount distributed within five years of the decedent's death. Choosing this method incurs taxes on earnings. He may also choose to take distributions based on the IRS life expectancy tables. If the decedent was already taking RMDs, the beneficiary may choose between having the entire amount distributed, or taking payments based on his life expectancy or the calculated life expectancy of the decedent, whichever is longer. The IRA distributions then remain either tax-deferred or tax-free, depending on the type of IRA.

Federal Estate Tax Deduction

If inheriting a traditional IRA, the beneficiary may be able to claim any deductions made for estate tax triggered by certain distributions. This does not apply to Roth IRAs. She may deduct estate tax paid on the part of the distributions considered income to the decedent, as long as the deduction is taken for the tax year in which this income is reported on the estate tax.

Photo Credits

  • Images