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You’ve inherited an IRA. Do you have to take required minimum distributions?

It’s time for some next-level estate planning.
Written byNancy Ashburn
Nancy Ashburn
As a 30+ year member of the AICPA, Nancy has experienced all facets of finance, including tax, auditing, payroll, plan benefits, and small business accounting. Her résumé includes years at KPMG International and McDonald’s Corporation. She now runs her own accounting business, serving several small clients in industries ranging from law and education to the arts.
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The Editors of Encyclopaedia Britannica
Encyclopaedia Britannica's editors oversee subject areas in which they have extensive knowledge, whether from years of experience gained by working on that content or via study for an advanced degree. They write new content and verify and edit content received from contributors.
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Your family has successfully completed estate planning and has named beneficiaries for life insurance policies and retirement plans. But there are still plenty of questions to consider. What exactly happens when you are the named beneficiary and you eventually receive the proceeds from those policies and plans? Does it matter if you are the spouse of the account holder? What if the retirement account owner was already taking required minimum distributions—how does that affect the account?

This is a complicated topic, so strap yourself in. But note: There are many potential scenarios, so they won’t all apply to you. Let’s look at some common situations to help you navigate the possibilities.

Key Points

  • Life insurance proceeds are generally not taxable.
  • If you inherit an IRA and you are the sole beneficiary spouse of the account owner, you have more choices in how to use the IRA.
  • For inherited IRAs, RMD amounts depend on several factors, including whether you’re the spouse and whether it was a Roth or traditional IRA.

What happens if you are a beneficiary of a life insurance policy?

Once proof of the policyholder’s passing (via a death certificate) is provided to the life insurance company, a payout will usually be mailed in a couple of weeks. The IRS has an interactive tax assistant that will help you determine if life insurance proceeds are taxable. Typically, if you received the payable-at-death amount specified in the policy as a lump sum, the proceeds aren’t taxable. You may use the funds as you see fit.

What happens if I inherit a traditional IRA?

Traditional IRAs are funded with pretax money, so all withdrawals are taxed, even after you inherit an IRA. But you have different options as to how to use the account, depending on whether you inherited the IRA from your spouse or from someone else.

If you inherited the IRA from your spouse and you are the sole beneficiary, you have three choices:

If you treat the IRA as your own, you can make contributions to it, following contribution limits.

If you inherited the IRA from someone other than your spouse:

  • You will act as the beneficiary of the IRA and will need to open a special inherited IRA account. You may not make contributions to the IRA.

What if the owner of the IRA account was not yet 59 1/2 when they died?

The IRS will assess a 10% penalty tax if you take money from an IRA and you are younger than 59 1/2. However, if you received the IRA as a beneficiary, you do not owe the penalty, even if you are also under age 59 1/2. The exception is if you are the spouse and the IRA is rolled into your own IRA; in this case, the inherited IRA becomes part of your own IRA and you are bound by the 59 1/2 rule.

What is the 10-year rule?

The 10-year rule was put into place in 2020 with the SECURE Act. It requires that the entire inherited IRA account be emptied by the end of the 10th year following the year of the account owner’s death. For example, if the IRA owner dies in 2023, the entire IRA account must be emptied by December 31, 2033.

This rule is optional for a spouse or other “eligible” designated beneficiaries, unless required minimum distributions (RMDs) had begun prior to the owner’s death (more on this below). It is required for all other beneficiaries, regardless of whether or not RMDs were started before death. Note that if a spouse or other eligible designated beneficiary chooses to use the 10-year rule, RMDs are not required.

Are there required minimum distributions when I inherit an IRA?

A required minimum distribution (RMD) is the amount the government requires you to withdraw each year from certain retirement accounts—such as your 401(k) or IRA—once you reach a certain age. The IRS provides tables for calculating RMDs.

Whether or not you have to take RMDs from an inherited IRA right away depends on (1) whether the account owner was already over age 73 and taking RMDs when they died, and (2) if you are the spouse.

If your spouse was not yet taking RMDs (under age 73):

  • If you inherit an IRA from your spouse and treat the IRA as your own by rolling it into your IRA, you don’t have to take RMDs until you reach age 73.
  • If you decide to act as the beneficiary of your spouse’s IRA by opening an inherited IRA account, you must either elect to use the 10-year rule or you must take RMDs based on the age of the original account owner. The calculation of future RMDs would be based on your own life expectancy. Special tables are used to calculate RMDs if the spouse is more than 10 years younger than the original account owner.

If your spouse was already taking RMDs (over age 73):

  • If you inherit an IRA from your spouse and treat it as your own by rolling it into your IRA, you don’t have to take RMDs until you reach age 73 (although your spouse would have been required to take an RMD in the year of their death).
  • If you decide to act as the beneficiary of the IRA and open an inherited IRA account, you must continue to take RMDs, although the calculation would now be based on your own life expectancy. The 10-year rule does not apply.

If you are a beneficiary (not a spouse) and the IRA owner had not starting taking RMDs (under age 73):

  • It is not necessary to take RMDs, but the 10-year rule applies.

If you are a beneficiary (not a spouse) and the IRA owner was already taking RMDs (over age 73):

  • You must continue taking RMDs and the 10-year rule applies. For example, if Anne inherits her father’s IRA and he died when he was 80 years old (already taking RMDs), she must take RMDs and pay taxes on the money each year; plus, she must empty the account within 10 years.
  • If there are multiple beneficiaries, RMDs will be calculated using the shortest life expectancy of the group. For example, if Ed at age 82 left his IRA to his five children, the oldest child’s life expectancy will be used to calculate RMDs for the other four beneficiaries, plus the accounts must be emptied within 10 years.

What happens if the IRA owner dies before taking their RMD that year?

If the IRA owner dies before April 1 of the year after the year they turn 73—the “required beginning date” defined by the IRS—there is no RMD in the year of death. If the owner dies on or anytime after that date, the owner or IRA beneficiary must take the RMD calculated for the owner (not the beneficiary) for the year of death or else pay stiff penalties. (RMDs are typically due December 31, but are given a grace period of April 1 only for the first required RMD after turning 73. Once RMDs begin, they are required annually.) Learn how required minimum distribution (RMD) rules work.

What is an eligible designated beneficiary?

You are an eligible designated beneficiary if any of the following scenarios apply:

  • You are less than 10 years younger than the IRA owner
  • You are the owner’s minor child
  • You are disabled or chronically ill

If the original IRA owner had already begun taking RMDs, the eligible designated beneficiaries must take RMDs beginning in the year of death over the longer of their own or the original owner’s life expectancy. If the owner had not yet begun taking RMDs at the time of death, the eligible designated beneficiary may choose the 10-year rule instead of taking RMDs. There are special RMD life expectancy rules if the eligible designated beneficiary is a minor child.

May I take the money instead of keeping the inherited IRA?

You may choose to cash out an IRA at any time after you inherit it. If you cash out a traditional IRA, you will need to include that money in your current-year income and pay taxes on it at your marginal tax rate.

What happens if I inherit a Roth IRA?

Roth IRAs and Roth 401(k)s are funded with after-tax money, so withdrawals—including interest—are tax-free as long as the account is at least five years old. As of 2024, inherited Roth IRAs and inherited Roth 401(k)s do not have required minimum distributions, so you can save or take the money out whenever you want it. (Roth IRAs and 401(k)s inherited before 2024 are subject to RMD rules following the death of the original owner.)

The bottom line

If you inherit money from a life insurance policy, that money is typically not taxable and you can do whatever you want with the funds at any time. If you inherit an IRA or 401(k), you have to follow the required minimum distribution rules and the age requirements, which can get quite complex. It’s often a good idea to involve a professional who can help you comply.

If the amount of the inherited IRA is not large—or if you need the money right away—you may choose to receive a lump sum distribution and pay any required taxes on the amount rather than follow the RMD rules in future years. Because you’ll typically be required to deplete the account within 10 years of inheriting it, it might be simpler to cash it out right away.

This article is intended for educational purposes only and not as an endorsement of a particular financial strategy. Encyclopædia Britannica, Inc., does not provide legal, tax, or investment advice. Please consult your legal or tax advisor before proceeding.