IRA CD Beneficiary Rollover Information

Insured CDs are safe but might provide paltry returns. Images

You have several choices when you inherit an individual retirement account that contains one or more certificates of deposit. The choices hinge on your relationship to the deceased, the deceased’s final age, the existence and ages of other beneficiaries, and the assets in the account. One option is to roll your inheritance into a beneficiary IRA CD that meets Internal Revenue Service distribution requirements.


An inherited IRA might consist of one or more CDs, perhaps mixed with other types of investments. Depending on the circumstances, a beneficiary might be able to leave a CD intact and let it mature. However, beneficiaries face required minimum distribution rules that may force the CD’s premature redemption. For example, if three children share an inherited seven-year IRA CD, they may cash it in to divide the proceeds evenly and to make any distributions that are required before the CD matures. Normally, you lose some interest when you cash in a CD before maturity, though some banks will waive the fee for IRA required distributions.

Spouse Beneficiary

A spouse who is the sole beneficiary of an IRA CD has the most flexibility in how to proceed. The spouse can accept direct ownership of the IRA or roll it over into her own IRA. In either case, the rules allow her to postpone any distributions from a traditional IRA until she reaches age 70 1/2. If she treats an inherited Roth IRA as her own, she need not take any distributions in her lifetime. A spouse who is not the sole beneficiary can still take ownership of her share of the assets through a rollover to her IRA. Either of two situations applies when a spouse doesn't take ownership of the inherited IRA. If she is the sole beneficiary, she can delay distributions until the decedent would have reached age 70 1/2. If she is not the sole beneficiary, she takes required distributions as if she were a non-spouse.

Non-Spouse Beneficiaries

If the IRA owner died on or after the required beginning date for minimum distributions, beneficiaries must take minimum distributions based on the owner’s life expectancy as of his birthday in his final year. The required beginning date is April 1 of the year following the one in which the owner reached age 70 1/2. However, if the owner died before this date, the IRA trustee must look to the designated beneficiary to figure the distribution period. A designated beneficiary is the oldest living beneficiary on Sept. 30 of the year following the owner’s death. When no beneficiary is alive or if the owner named a non-individual as one of the beneficiaries, then the trustee must distribute the IRA by the end of the fifth year following the year of the owner’s death. Otherwise, the trustee uses the life expectancy of designated beneficiary or that of the deceased as of the year of death, whichever is longer.


A non-spouse beneficiary can roll inherited IRA assets into a “beneficiary IRA” via a trustee-to-trustee transfer. This is a special type of IRA set up in the name of the deceased for the benefit of the beneficiary. Other than the initial rollover, you can’t transfer assets into or out of a beneficiary IRA, can’t contribute to it and must take the applicable required distributions. The benefit of this account is that it gives a beneficiary control over which investments, such as CDs, to hold inside the IRA without interference from other beneficiaries. The beneficiary also has the right to have the trustee convert the assets in this account to an annuity.