The beneficiary IRA distribution requirements can actually vary based on the type of IRA and who actually inherits the IRA. For example, an Inherited Traditional IRA requires that the beneficiary pay taxes on distributions, but an Inherited Roth IRA does not require tax payments.Continue Reading
Inherited IRA distribution requirements often require that the beneficiary begin taking distributions within five years of the original account owner's passing or within the lifetime of the beneficiary. The type of IRA that is inherited also plays a role. While SIMPLE, SEP and Rollover IRAs are converted to Inherited Traditional IRAs and require a tax payment, an Inherited Roth IRA does not.
There are also different requirements for when a spouse inherits an IRA versus when a non-spouse is the beneficiary, and the age of the beneficiary also plays a role in the distribution rules. An example of this would be the options available to a spouse who is over the age of 70 and a half versus one who is under that age. A spouse who is over the age of 70 and a half has three options: a spousal transfer, a lump sum withdrawal and opening an inherited IRA using the life expectancy method. A spouse under the age of 70 and a half would have four options: spousal transfer, lump sum withdrawal, opening an inherited IRA using the life expectancy method and opening an inherited IRA using the five-year method.
A non-spouse has similar options, but they do not have the ability to choose a spousal transfer. The age of a non-spouse also affects the requirements because the requirements differ for someone who is older than 70 and a half than someone younger. A non-spouse over 70 and a half can do either a lump sum withdrawal or open an inherited IRA using the life expectancy method. A non-spouse under 70 and a half can make either a lump sum withdraw, an inherited IRA using the life expectancy method or an inherited IRA using the five-year method.Learn more about Financial Planning