Inherited IRA

What it means

An inherited account is usually retitled to show both the deceased owner and the beneficiary. It is not merged with the beneficiary's own retirement accounts.

How quickly it has to be emptied depends on who inherited: a surviving spouse generally has options nobody else does, and most other beneficiaries are now on a fixed outer deadline.

Moving the money the wrong way — taking a check instead of a direct transfer — can make the whole balance taxable at once, and it cannot be undone.

Why it matters

It is one of the few places where a single administrative decision, made in the first weeks, has a tax consequence measured in years.

It is also where the rules changed most recently, so guidance written even a few years ago can be confidently wrong.

When you are likely to meet it

• When named as beneficiary of a retirement account.
• When a plan administrator sends distribution options.
• When deciding whether to cash out or transfer.

Related terms

• Beneficiary claimThe request a named person makes to an institution to be paid what they were named on. It is not a claim against the estate, and the two are opposites.
• Beneficiary designationA named person on an account or policy who receives it directly on death, without it passing through the will or probate.
• Designated beneficiaryThe person actually named on an account or policy. In the retirement-account rules it is also a narrower term, and an estate does not qualify as one.
• ERISAThe federal law governing most employer retirement and benefit plans. It is the reason a plan's own beneficiary form usually beats a will or a state law.
• Income in respect of a decedentIncome the person had earned but not received when they died, taxed to whoever receives it.
• Non-probate assetSomething that passes to a new owner automatically, without a court.
• Qualified domestic relations orderA court order dividing a workplace retirement plan between spouses after a divorce, which the plan must be given in order to act.
• Required minimum distributionThe amount that has to be taken out of a retirement account each year once the rules require withdrawals to begin.
• Step-up in basisThe tax rule that resets an inherited asset's value to what it was worth on the date of death.
• Thrift Savings PlanThe retirement savings plan for federal employees and members of the uniformed services.

Official sources

The authority this page describes, at the agency that publishes it. Sahvelo does not restate a rule from a secondary source.

• IRS — retirement topics, beneficiary (opens in a new tab)

Sahvelo guidance that uses this

• Retirement accounts