What to Do When You Receive an IRA As an Estate Beneficiary

There are two ways you can receive an IRA after the death of a decedent - either as a named beneficiary, or, if the original owner didn't name a designated beneficiary, you could receive the asset through the probate process. Your options differ based on whether the account is a Roth or traditional IRA, whether you are a designated beneficiary and whether you are the surviving spouse.

Surviving Spouses

While non-spouses must generally empty an inherited IRA by the fifth calendar year after the death of the original owner, surviving spouses have a valuable additional option: they can elect to treat an inherited IRA as their own. This means they can defer taxes on traditional IRAs until they must start taking required minimum distributions. It also means they can choose to let Roth IRAs grow tax free for as long as they live. Spouses can also roll an inherited IRA over into a qualified employer plan, they can contribute to an IRA or they can choose to treat themselves as an account beneficiary rather than designate themselves as account owners.

Required Minimum Distributions

Required minimum distributions are mandatory withdrawals that traditional IRA owners must begin to make by April 1 of the year after the year in which they turn 70 1/2. If you have inherited a traditional IRA, the first thing to do is see if any required minimum distributions are due. If the owner died after the required beginning date and you are a non-spousal designated beneficiary, then you must withdraw money no slower than the schedule determined under the life expectancy tables in IRS Publication 590. You can choose to use your own life expectancy or the original owner's life expectancy. Spouses who are more than 10 years younger than the decedent, and who choose to treat themselves as beneficiaries rather than name themselves the owners of the inherited IRA, must use the joint-and-survivor mortality table to determine their required minimum distributions, if any. See Publication 590 for the precise mortality tables and procedure to use for determining your own required minimum distributions.

Determine the Tax Basis

If you inherit a traditional IRA, you should also determine the tax basis, if any. The tax basis is the amount of contributions the original owner made on a non-deductible basis. When you withdraw the money and pay income taxes, you will receive credit for any basis in the account. Complete and file an IRS form 8606 to determine your basis.

Not a Spouse or a Designated Beneficiary

If you are not a surviving spouse and you were not named as a designated beneficiary on the account, you don't have to make required minimum distributions but you have to empty the account by December 31 of the fifth year following the year in which the original owner died.

Photo Credits

  • Form 1040 Tax Forms image by Viola Joyner from Fotolia.com

About the Author

Leslie McClintock has been writing professionally since 2001. She has been published in "Wealth and Retirement Planner," "Senior Market Advisor," "The Annuity Selling Guide," and many other outlets. A licensed life and health insurance agent, McClintock holds a B.A. from the University of Southern California.

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.