What Is a Beneficiary IRA Account?

Someone with an IRA can name one or more beneficiaries to inherit the account. The IRA assets pass according to the account beneficiary form, not the will. Some beneficiaries will need to set up a a beneficiary IRA to hold the money.

Who Needs the Account

There are only two kinds of IRA beneficiaries: a surviving spouse and everyone else.

  • A surviving spouse can treat the IRA he inherits as his own. The rules for the contributions and withdrawals are the same as if he'd set it up himself.
  • A spouse can roll over the inherited IRA assets to an account of his own.
  • The spouse can move the money into a beneficiary account and be treated like any other beneficiary.

Non-spousal beneficiaries can only move money into a beneficiary account.


Naming the Account

A non-spousal beneficiary should have the trustee of the deceased's IRA transfer the money into a beneficiary IRA. The beneficiary can set this up with the firm that managed the original IRA, or with a different company. Either way, it's essential she retitle the account properly. Putting her name on it isn't acceptable to the IRS: It has to say something along the lines of "Deceased name's IRA, heir's name as beneficiary." The account administrator can help phrase it properly.


  • If you don't title the beneficiary account properly, the IRS can treat it as if you'd made a withdrawal from the deceased's IRA. If the account is worth, say, $100,000, the IRS will treat it as $100,000 of added taxable income.

Taking Withdrawals

Someone who inherits her spouse's IRA and treats it as her own doesn't have to make any withdrawals until she turns 70 1/2. That's the point at which the IRA mandates a minimum annual withdrawal every year.

A non-spousal beneficiary must usually start making withdrawals the year after the owner's death. The minimum withdrawal amount is based on the IRS life-expectancy table for beneficiaries. At age 18, for example, the IRS predicts a life expectancy of 65 more years. If the account has $130,000 in it, the minimum withdrawal the first year would be $2,000. The beneficiary must repeat the calculation each year based on the IRA's current value and her age, until the account is empty.

The alternative is to empty the entire account within 5 years. If the beneficiary chooses this option, she could, for example, do nothing the first 3 years, withdraw 50 percent the fourth year and empty the account before the end of year five.

Withdrawals from a beneficiary IRA are taxable income. Roth withdrawals are not, as the original Roth owner paid tax on his contributions.

Naming a Beneficiary

One of the biggest mistakes when opening an IRA is not to name a beneficiary, notes Deborah L. Jacobs of Forbes. Depending on the IRA administrator's policy, it may simply transfer the IRA to the deceased's estate. That mandates the heirs withdraw the money within 5 years, which raises their taxes and reduces the interest they could have earned.

A spouse gains the best deal from inheriting an IRA, because she doesn't have to start withdrawals right away. It's important to name a successor beneficiary, so that if the spouse predeceases the owner, there's still an individual beneficiary named. It's also important to keep the forms current. An ex-spouse may be able to inherit if he's still named as beneficiary, for instance.


  • In community property states, the spouse has a right to half of what the IRA owner contributes to the account during the marriage. Depending on state law, the owner may need the spouse's permission to name someone else as beneficiary.

IRA inheritance is not governed by the will, so any statements about "dividing the estate equally" or "everything goes to—" in the will do not affect the beneficiary form. The owner might want to weigh the IRA's value against other assets when deciding who inherits what.