The Difference Between Inheriting an IRA vs. Assuming an IRA

Inheriting and assuming an IRA aren't completely different. The IRS lumps IRA beneficiaries into two classes -- spouses and everyone else. If you're "everyone else" you can inherit the IRA. If you're a spouse, you have an added option -- assuming ownership of the account and treating it as your own.

Inheritance: The Transfer Option

When you inherit an IRA, you don't have a choice about keeping the assets in the account -- the IRS is going to insist you start withdrawing them. One way to do this is to have the account trustee transfer them into a new IRA that names you as the owner's beneficiary. You then start making mandatory minimum annual withdrawals based on the life-expectancy tables in the appendix to IRS Publication 590.

Inheritance: The Five-Year Plan

If the owner died younger than 70 1/2 -- the age at which mandatory withdrawals begin -- you can instead choose the five-year withdrawal option. This lets you withdraw from the account on any timetable or frequency you choose, as long as you empty the IRA within five years. You can, for example, wait until the fifth year and then withdraw everything at once. Whenever you withdraw the money, you will have to pay taxes on it.

Assuming an IRA

As the owner's spouse, you can assume ownership of the IRA if you're the only beneficiary named. Assuming the account gives you the right to put money in the account and keep it there just as if you'd set it up yourself. You can roll money out of the assumed IRA into your own retirement accounts, or make a rollover from your old accounts into the assumed IRA.


Once you assume your spouse's IRA -- whether by choice or default -- you're bound by the same withdrawal rules that apply to your own IRA. If you take money out before you turn 59 1/2, you pay tax on the withdrawal, plus a 10 percent penalty. If you need the IRA assets immediately, assuming the account might be a mistake. However, if you don't need the money, assuming the account lets you wait until 70 1/2 before you have to take anything out.