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IRA Financial Blog

Inherited IRA Options – Episode 245

Adam Talks

IRA Financial’s Adam Bergman discusses the Inherited IRA options and the differences of being a spousal beneficiary and a non-spouse one. If you own an IRA, make sure you name your beneficiaries and know what happens when you pass.

When you start an IRA (or any type of retirement plan) it’s important to name at least one beneficiary. In fact, you should name secondary beneficiaries, just in case. There are Inherited IRA options, depending on your relationship to the decedent. You are either a spouse or a non-spouse. Spouses have the most flexibility and can take full advantage of the plan. Non-spouses are limited and the funds must be distributed within a certain time frame. In this podcast, Mr. Bergman discusses all your options, as either a spousal or non-spousal IRA beneficiary.

Inherited IRA Options for a Spouse

If your spouse passes and he or she left you an IRA, you have a few options. First, you can essentially do nothing. You can leave the IRA in your spouse’s name and it will continue to grow as normal. If your spouse was under age 72, there’s nothing you need to do. You may withdraw funds penalty-free if he or she was at least 59 1/2. However, if your spouse was at least age 72, required minimum distributions (RMD) must be satisfied. RMDs are a percentage of the IRA that must be withdrawn annually. They are calculated based on the IRA balance and your age (and also that of your spouse that passed). Traditional distributions will be taxed at your current federal income tax rate.

The other option is to take the IRA and put it under your name. This is the typical move a beneficiary will make. A lot depends on the ages of you and your spouse. For example, if you have not reached age 72 and your spouse had before he or she passed, this makes the most sense. Distributions are not required until that age, so the IRA can continue to grow unhindered until you do reach 72.

What Type of IRA Matters

The type of IRA matters when considering your Inherited IRA options. If you inherited a Spousal IRA, whether it’s traditional or Roth IRA, it can be treated as if the IRA was yours. Traditional IRA withdrawals will be taxed, as mentioned above. However, qualified Roth IRA distributions are not taxed. Assuming the Roth has been open for at least five years and you are at least age 59 1/2, you will never pay taxes on Roth withdrawals. Further, no RMDs are due for Roth plans, so the funds inside can continue to grow on a tax-free basis.

Inherited IRA Options for a Non-Spouse

If you inherit an IRA from a non-spouse, such as a parent, child, aunt or uncle, you do have some options. However, they are not as good as the Spousal IRA benefits. Prior to the SECURE Act, the best option was known as the “Stretch IRA.” You could leave your IRA to a child and the IRA would continue to grow during his or her lifetime. This allowed you to stretch the tax advantages of the plan over years, or even decades. However, that is no longer allowed.

The SECURE Act put a limit on the length of time the IRA could grow for non-spouse beneficiaries. As of 2020, the IRA funds must be depleted within ten (10) years. There are no rules as to how you must withdraw the funds, so long as the IRA is emptied by the tenth year. The best course of action, assuming you don’t need the funds right away, is to leave it untouched until the ten-year deadline. This allows for the most tax-deferred growth possible.

The only good thing about the SECURE Act is that you are not required to take distributions until the ten year period is up. However, you cannot place the IRS in your name (as you can if you were the spouse of the decedent). Further, you cannot contribute to the IRA either.

Other Things to Note

Of course, taxes are due on traditional distributions. Inherited Roth IRAs will not be taxed, so long as the account had been open for at least five years. There is also no early withdrawal penalty for those under 59 1/2.

Lastly, if a spouse passes on an Inherited IRA (to a child for example), he or she must deplete the account within ten years. Note: there are different rules when an estate is the beneficiary, which Mr. Bergman discusses in the podcast.


It’s important to name beneficiaries if you have an IRA. This is doubly important during the age of COVID-19. Make sure your finances are in order and your beneficiaries know the Inherited IRA options based on their relationship to you. Of course, we wish everyone can live to 100 years old, but that isn’t the case. Be prepared as soon as you open your IRA!

Thanks again for listening to Adam Talks, and be sure to check out our SoundCloud channel for previous episodes. Hope to see you all again next week!


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