IRA Rules When the Owner Dies

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When the owner of an IRA dies, the beneficiary can either roll over the account into his own, make a trustee-to-trustee transfer or leave it open under the owner's name and continue to take the owner's required monthly distributions. First, the original owner of the account must make sure, prior to his death, to appoint a designated beneficiary. Otherwise, the account becomes part of the estate and must go through probate, which can result in the loss of a large sum of the accumulated money.

Inherited From a Spouse

Inheriting an IRA from a spouse gives the person the option to treat the IRA as her own by renaming herself as the account owner or rolling it over into an already existing IRA in her name. The Internal Revenue Service will not tax a spousal rollover as income until she seeks to withdraw distributions from her account. A spouse can contribute to the account and not begin taking required minimum distributions from a traditional IRA until she reaches age 70 1/2.

Becoming the Owner of the IRA

A spousal rollover eliminates the requirement to take required minimum distributions as the original owner. This means that taking required minimum distributions will occur when the spouse reaches the age of 70 1/2 in the case of a traditional IRA. An owner can go without ever taking required minimum distributions from a Roth IRA.

Inherited From a Nonspouse

Nonspouse beneficiaries cannot treat the accounts as their own. The options are leaving the account open in the name of the original owner or transferring the account via a trustee-to-trustee transfer. Be sure to use the words "trustee-to-trustee transfer" when moving funds. If the original owner was Joe Smith and Bob Jones inherits it, the new title is "Joe Smith's account for the benefit of Bob Jones."

The Inherited IRA and Taking Required Minimum Distributions

A beneficiary can continue to accumulate returns in the IRA, traditional or Roth, but may not make any further contributions to the account if he is not a surviving spouse. Taxing distributions only occurs upon withdrawing the money. However, the beneficiary must continue to take required minimum distributions, no matter what his age. The IRS bases required minimum distribution amounts on a life expectancy chart. If the owner died on or after taking required minimum distributions, the distribution continues using either the age of the owner or the beneficiary, whoever is younger. If the owner died prior to taking any required minimum distributions, then life expectancy is based on the beneficiary's age.