Inherited IRAs

If you have inherited an individual retirement account (IRA) from a spouse or loved one, you have several different options, depending on your circumstances. The three key factors impacting your options are:

  • IRA Type - Did you inherit a traditional IRA or a Roth IRA?
  • Beneficiary(ies) - Is the beneficiary a spouse, a non-spouse or both?
  • Time - Did the deceased IRA holder pass away before the Required Beginning Date (RBD) of his or her traditional IRA? The RBD is the April 1 following the year in which the deceased IRA holder would have reached age 70 1/2.

In some cases, you will have the option of taking distributions under what is called the 'five-year rule'. Under the five-year rule, you may withdraw any amount of money at any time as long as the entire IRA balance is withdrawn by Dec. 31 of the year that marks the fifth anniversary of the IRA holder's death.

Or, you may be eligible to take life expectancy payments, which require you, the beneficiary, to take payments at least annually, based on a life expectancy. A spouse beneficiary must start taking payments by whichever of the following options occur last: Dec. 31 of the year following the year of the IRA holder's death or Dec. 31 of the year in which the IRA holder would have reached 70 1/2 years of age. A non-spouse beneficiary must begin taking life expectancy distributions by Dec. 31 of the year following the year of the IRA holder's death.

Beneficiary Options When Traditional IRA Holder Dies Before RBD

Spouse is Sole Beneficiary

  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy paymentsTreat IRA as own

Non-spouse Beneficiary or Spouse is NOT Sole Beneficiary

  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy payments
  • Spouse may roll over to own Traditional IRA

Beneficiary Options When Traditional IRA Holder Dies On or After RBD

Spouse is Sole Beneficiary

  • Distribute entire amount
  • Distribute over the longer of the IRA holder's life expectancy or spouse beneficiary's life expectancy
  • Treat IRA as own

Nonspouse Beneficiary or Spouse is NOT Sole Beneficiary

  • Distribute entire amount
  • Distribute over the longer of the IRA holder's life expectancy or spouse beneficiary's life expectancy
  • Spouse may roll over to own Traditional IRA

Beneficiary Options - Roth IRA

Spouse is Sole Beneficiary

  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy payments
  • Treat IRA as own

Non-spouse Beneficiary or Spouse is NOT Sole Beneficiary

  • Distribute entire amount
  • Five-year rule
  • Annual life expectancy payments
  • Spouse may roll over to own Roth IRA

You do not need to keep the inherited IRA in its current location. If you choose, you may directly transfer the assets to Scottrade, where the IRA will be set up and maintained as a beneficiary account.

You have until Dec. 31 of the year following the year of the IRA holder's death to make a decision concerning how to handle the deceased IRA holder's account. If you have questions about your options or how to transfer your inherited IRA to Scottrade, please contact your local branch office.

This material is for informational purposes only. Please consult your tax or legal advisor(s) for questions concerning your personal tax or financial situation.