Does an Inherited IRA Have to Be Set Up by End of Year Following the Year of Death?

An IRA owner doesn't have to tap the account until she turns 70 1/2. If you're an IRA beneficiary, on the other hand, you may not have that much time. In most cases, you have to open an inherited IRA, then make minimum annual withdrawals based on your life expectancy. The deadline to begin withdrawals is the end of the year after the year in which the account owner died.

Inherited IRA

If the account owner dies in, say, 2013, you have to open a beneficiary account by the end of 2014. It has to identify you in the title as the beneficiary of the original owner. Once it's set up, you contact the owner's account trustee to transfer the IRA assets into it. Your first withdrawal is due in 2014, unless the owner was older than 70 1/2 at the time of his death. In that case, you take a withdrawal from his account for the year in which he died, too.

Special Beneficiaries

If you inherit from your spouse, you don't have to set up a new IRA at all. You can keep your spouse's account in your name and treat it as your own, or you can roll the assets into your own non-beneficiary account. This way, you don't have to withdraw any money until you turn 70 1/2.

Five Years

If you don't start minimum withdrawals from your inherited IRA in the year after the owner's death, the IRS normally slaps you with a tax penalty. The IRS offers an alternative, though. If the owner died before age 70 1/2, you can waive minimum withdrawals if you empty the account within five years. Say the owner dies in February 2014: you can skip withdrawing from your beneficiary account in 2015 as long as you withdraw everything by 2019.


If you don't follow the IRS rules exactly, it's going to hurt. If you mix inherited IRA money with other IRA money and you're not the deceased's spouse, the IRS taxes your inheritance as if you'd withdrawn it all. The same thing happens if you don't title your beneficiary account properly. If you don't make a large enough minimum withdrawal, you pay a 50 percent tax on the withdrawal shortfall.