Required Distributions for an Inherited IRA

When you inherit an Individual Retirement Account (IRA), the Internal Revenue Service (IRS) has specific regulations on how to handle required distributions. For example, if you are the spouse of the decedent, you can choose to handle the IRA differently than if you are a non-spouse. Whether the decedent was already taking required minimum distributions (RMDs) from the account is also a factor.

Spouse of Decedent

If you inherit an IRA from your spouse, you are granted certain privileges by the IRS that do not apply to non-spousal beneficiaries. Specifically, you can make the inherited IRA account your own, by rolling it over into your existing IRA, or by simply retitling the account in your name. As such, you are allowed to make contributions and take withdrawals as if the account was always yours, and you are only required to take distributions based on your own age. Thus, if you inherit an IRA from your spouse, even if the decedent was already taking RMDs, you are not required to until you reach the age of 70 1/2, which is the mandatory date for all IRA holders to begin taking distributions.

Non-spousal Beneficiary

As a non-spousal beneficiary, you cannot treat the inherited IRA as your own, meaning you cannot make contributions to it or roll it over into another account in your sole name. Additionally, regardless of your age, you must begin taking distributions from the account. The amount of the distribution depends on whether the decedent had already begun taking RMDs. If he died on or after the required beginning date, you must base future distributions on the longer of your life expectancy, as shown in IRS Table 1, or that of the decedent. If he died before the required beginning date, you can base distributions on your single life expectancy.

Taxation of Distributions

As contributions to traditional IRAs are made with pre-tax dollars, all distributions from an IRA are taxable at ordinary income rates. If you take distributions from an inherited IRA, even if you are under the age of 59 1/2, the 10 percent penalty tax for early distributions is waived.