A beneficiary IRA account is a retirement account inherited from a previous account owner, reports the IRS. Spouses of account owners have more options than other beneficiaries about how to handle the account and its distributions.
Surviving spouses who are sole beneficiaries of IRA accounts have the choices of designating themselves as account owner, rolling the account over into another IRA or receiving distributions as a beneficiary, according to the IRS. Claiming ownership of the account or rolling the funds over allows tax deferral to continue until the funds are withdrawn, advises U.S. News & World Report.
Other beneficiaries or spouses who remain beneficiaries have the option of removing the funds from the account as a lump sum and paying regular income tax on the entire amount at once, as reported by Nolo. Some plans allow beneficiaries to arrange for minimum distributions over their expected lifetime, while in other plans all distributions must be made within five years. Beneficiaries can also create inherited IRA accounts which allow the funds to continue to grow within the account. To avoid paying income tax, the funds in the original account must be moved to the new account in a direct trustee-to-trustee transfer. When there are multiple beneficiaries, the original IRA plan can be split into separate accounts so each beneficiary can handle distributions individually, states U.S. News and World Report.