What Are the Rules About Taking Distributions From an Inherited IRA?


Quick Answer

According to inherited IRA distribution rules, spouses can appropriate the IRA as their own or take distributions as a beneficiary, and nonspouse beneficiaries can take distributions over their lifetimes or over a five-year period, reports Bankrate. Sometimes inheritors must pay the last required minimum distribution of the decedent.

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Full Answer

Spouses inheriting IRAs as sole beneficiaries can designate themselves as the owner of the account, roll the account over into their own IRA, or treat themselves as a beneficiary, according to the IRS. If the owner of the account died younger than 70 1/2, the spouse does not need to begin distributions until the decedent would have reached 70 1/2, states U.S. News & World Report Money. A spouse who takes a distribution has 60 days to transfer it to another IRA without paying taxes. If the owner of the account dies without withdrawing a yearly required minimum distribution, the spouse or other beneficiaries must take the distribution or pay a 50 percent penalty tax on the amount that should have been distributed.

Nonspouse beneficiaries who take required minimum distributions over their lifetimes maintain tax deferral and allow the account to grow, states U.S. News & World Report Money. Otherwise, beneficiaries must opt to remove the funds from the account within five years, which creates a significantly larger tax bill, as reported by Bankrate. When there are multiple beneficiaries, required minimum distributions are calculated according to the beneficiary with the shortest life expectancy unless separate accounts are created, states the IRS.

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