Key Takeaways:
- Inheriting an IRA from someone other than a spouse triggers a completely different set of rules than your own retirement account
- The first decisions you make can directly determine how much of that inherited account’s value you keep versus lose to taxes or penalties
- Non-spouse beneficiaries must establish a properly titled inherited IRA, and transfers must be done institution to institution
- Non-spouse beneficiaries must fully withdraw the account within 10 years under the SECURE Act
- Annual required minimum distributions (RMDs) may apply during that window, depending on your beneficiary category
- Missing deadlines, taking early distributions, or rolling funds incorrectly can trigger avoidable tax consequences
- With the right plan in place, an inherited IRA can become a meaningful part of your long-term income strategy
Inheriting an IRA can feel like a gift. And in many ways, it is. But for non-spouse beneficiaries, it also comes with a set of IRS rules that most people have never encountered before.
Many people are not thinking about IRS rules in the weeks immediately following a loved one’s death.
That’s exactly when costly mistakes happen.
What Happens When You Inherit an IRA and Why Mistakes Are So Common
Unlike retirement accounts you build for yourself, inherited IRAs follow an entirely different structure (per IRS guidance on inherited IRAs and RMDs). The decisions made in those first weeks and months can directly affect how much of that account’s value you actually get to keep and how much is surrendered to taxes, penalties, or poor timing.
What I see most often is that the rules were never explained clearly. People act quickly, with good intentions, and end up with consequences that can't be undone.
At Your Secure Retirement, we help clients slow down, understand their options, and make decisions that support long-term income rather than short-term relief. If you've recently inherited an IRA from someone other than a spouse, here's what you need to know before you do anything.
Why the Smartest First Move Is Often No Move at All
One of the most common mistakes is also the simplest: taking money out too soon.
When you're grieving and navigating an estate, it can feel natural to access available funds quickly. But an early distribution from an inherited IRA can:
- Trigger immediate, significant income taxes
- Eliminate years of potential tax-deferred growth
- Permanently limit your long-term income flexibility
Inherited IRA funds cannot be combined with your own retirement accounts. They exist under their own rules, their own timelines, and their own tax treatment. You cannot, for example, convert an inherited IRA to a Roth IRA, a common assumption that, if acted on, can create significant tax and legal problems. Before making any moves, you need to understand how those funds fit into your overall financial picture.
One piece of genuinely good news: unlike your own retirement accounts, inherited IRAs are generally not subject to the 10% early withdrawal penalty, regardless of your age. The tax exposure is real, but the penalty that often discourages people from touching their own IRAs early does not apply here. That's an important distinction, and one more reason why having a clear, coordinated withdrawal strategy matters more than speed.
How to Set Up an Inherited IRA the Right Way
Non-spouse beneficiaries must establish a properly titled inherited IRA to preserve the tax treatment of those funds. This is not optional, and the titling matters.
The account must be titled in the name of the original owner, with you listed as beneficiary — something like: "[Deceased's Name], IRA, for the benefit of [Your Name], Beneficiary."
A few critical rules apply:
- Transfers must be done directly between institutions (trustee-to-trustee)
- You cannot complete a 60-day rollover with inherited IRA funds
- If funds are paid directly to you instead of transferred, the IRS treats that as a distribution and taxes it accordingly
This step may feel administrative, but it is one of the most consequential parts of the entire process. Done incorrectly, it can cost you a significant portion of what you inherited.
What to Do When Multiple People Inherit the Same IRA
If an IRA is inherited by more than one beneficiary, the account should be split into separate inherited IRAs — one for each person — by December 31 of the year following the original owner's death.
This matters because splitting the account allows each beneficiary to:
- Follow their own distribution timeline based on their individual situation
- Maximize the time allowed under IRS rules
- Align withdrawals with their own tax picture and income needs
Without the proper split, beneficiaries may be forced into a less favorable distribution schedule — often tied to the oldest beneficiary's timeline, which can accelerate withdrawals and increase taxable income for everyone.
Understanding the 10-Year Rule and RMD Requirements Under the SECURE Act
Under the SECURE Act, most non-spouse beneficiaries must fully withdraw the inherited IRA within 10 years of the original account owner's death.
In many cases, that also means taking required minimum distributions (RMDs) during that 10-year window, not just at the end. Whether annual RMDs apply depends on your category as a beneficiary and whether the original account owner had reached their required beginning date.
This creates a real planning decision. Withdraw too quickly, and you spike your taxable income. Wait too long, and you face penalties for missing required distributions. The goal is a structured withdrawal strategy that:
- Manages your tax bracket year over year
- Coordinates with your other income sources
- Preserves as much of the account as possible for as long as it serves you
This is not a set-it-and-forget-it situation. It requires thoughtful, annual attention.
Why Deadlines and Original Account Records Matter
Inherited IRA rules come with firm deadlines and missing them can limit your options or trigger penalties that can't be reversed.
For example:
- Separate inherited IRAs for multiple beneficiaries must generally be established by the applicable deadline, often December 31 of the year following the original owner's death
- RMD deadlines apply annually during the 10-year window in many situations
- The 10-year distribution window must be completed on time or other tax consequences may apply
It's also worth reviewing the original account records carefully. Some IRAs contain non-deductible (after-tax) contributions, which can be withdrawn tax-free if handled correctly. Without that documentation, you may end up paying taxes on money that was already taxed.
And one step that is frequently overlooked: naming your own beneficiaries on the inherited IRA. If something happens to you before the account is fully distributed, having beneficiaries on file ensures those remaining funds pass according to your wishes.
How to Use an Inherited IRA as Part of a Larger Retirement Strategy
More than another account to manage, an inherited IRA can become a meaningful part of a coordinated retirement income strategy.
That coordination includes:
- Timing withdrawals alongside your other income sources to stay within favorable tax brackets
- Factoring in Social Security, pensions, or other distributions that affect your taxable income
- Using the account's growth potential strategically during the 10-year window
- Aligning distributions with both near-term income needs and long-term legacy goals
The difference between a reactive decision and a coordinated plan can be significant. It affects not just how much tax you pay, but how long those funds last and how much flexibility you have throughout retirement.
Inherited an IRA? You Don’t Have to Figure This Out Alone
I've sat across from many people who inherited an IRA and came in feeling unsure, overwhelmed, or afraid they had already made the wrong move. In most cases, no one had taken the time to walk them through how these accounts work, or how each decision connects to the bigger picture.
As an Ed Slott Master Elite IRA Advisor—a designation held by fewer than 1% of financial advisors in the country, recognizing advanced expertise in IRA strategies and tax planning—this is the work I specialize in every day. But inherited IRA planning doesn’t happen in a vacuum. I take a holistic approach, looking at how every account, income source, and tax decision fits together as part of your broader retirement picture.
If you'd like a second look at your situation or want to understand your options before taking any action, we invite you to schedule a conversation with our team.
Frequently Asked Questions About Inheriting an IRA
Can I move an inherited IRA into my own IRA?
No. Non-spouse beneficiaries must keep inherited IRA funds in a separate, properly titled inherited IRA. Only a spouse who inherits an IRA has the option to treat it as their own.
What happens if I take an inherited IRA distribution too early or incorrectly?
You may trigger unnecessary income taxes and permanently lose future tax-deferred growth. Some errors cannot be corrected after the fact, which is why getting the setup right from the beginning matters so much.
Can I convert an inherited IRA into a Roth IRA?
No. Non-spouse beneficiaries cannot convert an inherited traditional IRA to a Roth IRA, regardless of how advantageous it might seem for long-term tax planning. The account must follow the distribution rules as structured. If you want to work toward Roth savings while drawing down an inherited IRA, there may be a workaround: taxable distributions from the inherited IRA can potentially be contributed to your own Roth IRA each year, subject to your income, contribution limits, and eligibility.
What is the SECURE Act and how does it affect inherited IRAs?
The SECURE Act was signed into law in December 2019 and applies to IRA owners who died after December 31, 2019. If the original owner died in 2019 or earlier, the old rules still apply. SECURE 2.0, signed in December 2022, made additional updates. Under the new rules, most non-spouse beneficiaries must fully withdraw the account within 10 years, replacing the old "stretch IRA" strategy that allowed distributions over a beneficiary's lifetime.
Will I owe a penalty for taking money out of an inherited IRA?
No. Inherited IRAs are generally never subject to the 10% early withdrawal penalty that applies to personal retirement accounts. However, distributions from an inherited traditional IRA are still taxable as ordinary income, which is why the timing and structure of withdrawals matters so much.