There are several factors that might determine what you should do with your deceased mother's individual retirement account (IRA), including what type of IRA it is, the age at which your mother passed away, and whether she designated a beneficiary for the account. Inherited IRA rules are complicated, so you would be well advised to discuss your situation with a tax professional.
To begin the process of figuring out what to do with the IRA, contact the account's trustee--the bank or financial institution that administers the account--to find out if your mother named a beneficiary. If she did, the account skips probate court and passes directly to the person she listed with the trustee. It is also possible that she named more than one beneficiary, intending for them to split the account. If the designated beneficiary or beneficiaries are themselves deceased, the account would then pass to any contingent beneficiaries your mother named. If your mother named no designated beneficiaries, the account passes to her estate.
The existence of a designated beneficiary is crucial in determining what happens to an IRA. A designated beneficiary has the right to keep the account open and enjoys many of the same tax benefits as the original owner. If there are no primary or contingent beneficiaries to inherit, the account passes to the estate where it is subject to probate, the court in charge of adjudicating the deceased's will. There the account is fair game for creditors and any others who claim your mother's assets. In addition, Internal Revenue Service rules stipulate that IRAs that pass to estates must be emptied within five years--which robs the account of much potential.
If your mother named her spouse as her sole beneficiary, he has the unique option of treating the account like his own. He can either roll it into his own retirement assets or put his name on the account. If the account is a Roth IRA, or if it is a traditional IRA and he is not 70 1/2, he may continue contributing to it and delay taking withdrawals. In addition, he has the options available to non-spouse beneficiaries. If your mother named her spouse as her sole beneficiary but he is himself no longer living, and she named no contingent beneficiaries, the account passes to her estate.
If your mother named a non-spouse beneficiary, such as you, one of your siblings, or anyone to whom she was not married to at the time of her death, that person cannot contribute to the IRA and must begin taking withdrawals. Non-spouse beneficiaries have two options: they may leave the account open for five years, then take a lump-sum distribution. Or, they may begin taking required minimum distributions (RMDs) annually, beginning the year following your mother's death. The IRS calculates RMDs by dividing the account's worth the previous Dec. 31 by the beneficiary's life expectancy. In its Publication 590, the IRS has life expectancy tables beneficiaries can use for this purpose.
Beneficiaries aren't the only ones who need to take RMDs. Those who reach the age of 70 1/2 and own traditional, SIMPLE or SEP IRAs must take them as well. If your mother passed away after the age of 70 1/2 and left you one of these accounts, make sure she took her annual RMD. If she did not, you must withdraw the amount on or before Dec. 31 the year she dies. If you do not, the IRS charges a whopping 50 percent penalty on the amount of the RMD. The agency has this rule to prevent people from leaving money in IRAs longer than they are allowed.
- IRS Publication 590: What If You Inherit an IRA?
- IRS Publication 590: When Must You Withdraw Assets?
- IRS Publication 590: Distributions After Owner's Death
- CNN Money: Pick Your IRA Beneficiary
- Congressional Research Service. "Inherited or 'Stretch' Individual Retirement Accounts (IRAs) and the SECURE Act," pages 1-2. Accessed Sep. 6, 2020.
Diane Kuriluk has been writing about small business solutions, economics and personal finance since 2007 for sites that include Work.com. She is also a professional grant writer for nonprofit organizations. She attended the University of Michigan.