You’ve Inherited an IRA ... Now What?

Valentine M. Mello, Esq.
Vice President, Relationship Manager, and Trust Officer
Washington Trust Wealth Management

When you inherit an IRA, you also inherit rules about when you can and must withdraw the money, as well as how much you get to keep after taxes. Understanding the applicable rules can help you make informed decisions about managing your inheritance

First, Check the Date

Start with one question: When did the account owner die? If the death occurred after December 31, 2019, the SECURE Act requires most individual beneficiaries to empty the inherited IRA within 10 years. Depending on the circumstances, you may also need to take annual withdrawals during that period.ⁱ Certain beneficiaries, including surviving spouses, qualify for more flexible options. If the owner died before 2020, individual beneficiaries could generally spread withdrawals over their life expectancy, allowing the remaining funds to continue growing tax deferred.ⁱⁱ That’s why the date matters: It helps determine how quickly you must withdraw your inheritance.

Find Your Beneficiary Category

Now comes the jargon. You’ll need to determine whether you’re an eligible designated beneficiary (EDB) or a non-eligible designated beneficiary (NEDB). 

You generally qualify as an EDB if you’re the owner’s surviving spouse; their child under 21; disabled or chronically ill under IRS definitions; or older than the owner, the same age, or no more than 10 years younger.ⁱⁱⁱ For example, if you inherit your sister’s IRA and you’re six years younger, you generally qualify as an EDB. You may be able to spread withdrawals over your life expectancy, giving the remaining traditional IRA funds more time to grow tax deferred.

The minor child exception has a limit: At 21, your 10-year distribution period begins. And this exception applies to the owner’s children, not grandchildren.

Inheriting From Your Spouse? You Have Options

As a surviving spouse, you generally have the most flexibility. You can keep the money in an inherited IRA or, subject to applicable requirements, roll it into your own IRA.

Don’t rush this choice. The options have different withdrawal rules, so consider your age, when you’ll need the money, and when required distributions would begin before deciding.

Ten Years Doesn’t Always Mean You Can Wait

If you’re an adult child, grandchild or another individual who doesn’t qualify for an EDB exception, you generally must empty the IRA by December 31 of the tenth year after the owner’s death. Inherit from someone who died in 2026, for example, and your deadline is December 31, 2036. ^iv

Here’s the tricky part. If the owner died on or after their required beginning date for required minimum distributions (RMDs), you generally must also take annual RMDs in years one through nine. If they died before that date, or you inherited a Roth IRA, you generally can choose when to withdraw during those nine years under the 10-year rule. Either way, the final deadline matters, and missing required distributions can trigger penalties.

Plan Beyond the Deadline

A large taxable traditional IRA withdrawal can push some of your income into a higher tax bracket. Consider your cash flow, investment goals and estate plans together. If you expect your income to drop after retirement, for example, you might explore taking larger withdrawals then while still meeting annual requirements.

Let Washington Trust Wealth Management Help

The experienced advisors at Washington Trust Wealth Management can help you turn the questions that come with an inherited IRA into a clear plan. We can help you review your distribution options, identify important deadlines, and, where appropriate, coordinate with your tax adviser as you consider the potential tax implications of withdrawals. We’ll also look at how this inheritance fits into your broader financial life, from your immediate cash needs to your retirement goals and the legacy you hope to leave.