Inherited IRA
An inherited individual retirement account (IRA) is an account that is opened when a beneficiary inherits an IRA or employee-sponsored retirement plan, after the death of the original owner.
A person who inherits their spouse’s IRA has a unique option: they can make the account their own. They would not have to establish an “inherited IRA.” Instead, they could establish a traditional IRA or Roth IRA depending on the account type of the original owner.
As a beneficiary, you cannot make additional, annual contributions to an inherited IRA, but the assets in the account will remain tax-deferred or tax-fee in some cases. Generally, distributions from these types of accounts do not incur a tax penalty.
As with any other IRA, funds within the account can be invested to increase the value of the inherited IRA. The Internal Revenue Service (IRS) places a few limitations on the investments that can be made within an inherited IRA and include a very limited number of items.
Key Features
- Tax-deferred growth
Any gorwth in the account will contiue to be tax-deferred until the assets are withdrawn.
- No early withdrawal penalties
You will not incur a 10 percent early withdrawal penalty on distributions, even if you are under age 59½.
- Taxable earnings
For a Roth inherited IRA, only earnings are taxable if the account is less than five years old at the time of the account holder’s death.
- No additional contributions
Unable to make annual contributions to an Inherited IRA.
- Transfer requirements
Assets from an inherited IRA can only be transferred to another inherited IRA, inherited from the same party.
- Required distributions
Required minimum distributions (RMDs) are mandatory for inherited IRAs.
NOTE: Please visit www.irs.gov for complete rules and regulations regarding IRAs. Certain restrictions apply regarding prohibited transactions.
Frequently Asked Questions
about inherited IRAs
What are the fees for opening an Inherited IRA?
Most custodians of traditional assets collect fees and/or commissions based off of the amount of trades or recommendations of investment choices. Provident Trust Group offers a flat-rate annual fee.
View our fee schedule for full, transparent breakdown of our fees.
What do I need to know if I'm planning to disclaim the assets?
If you’re planning to disclaim the assets, your written disclaimer generally must be received no later than nine months after the date on which you become entitled to the assets, according to Federal regulations.
What is the maximum allowable contribution?
Our COLA limits document provides a comprehensive overview of how much you can contribute to your inherited IRA.
What important dates do I need to know for this account type?
December 31 of the original account owner’s year of death:
If the account owner died on or after his or her required beginning date (RBD), the RMD for the year must be satisfied if it was not taken in full during the account owner’s lifetime.
December 31 of the year following the original account owner’s year of death:
If you are taking an RMD based on the life-expectancy method, distributions must begin by this date. If you are one of multiple beneficiaries, all beneficiaries must have established separate inherited IRA accounts by this date to calculate distributions based upon each beneficiary’s own life expectancy.
September 30 of the year following the original account owner’s year of death:
Important for determining the beneficiary whose life expectancy may be used to calculate the RMD (the designated beneficiary). If you’re one of multiple beneficiaries of varying ages, all beneficiaries must use the life expectancy factor of the oldest beneficiary who has not taken a lump-sum distribution or disclaimed his or her entire interest prior to this date. However, if all of the beneficiaries have established separate IRA accounts by December 31 of the year following the account owner’s death, then all beneficiaries may be able to use their own life expectancy factors to calculate their RMD. Check with your tax advisor to see if you are eligible for this benefit.
October 31 of the year following the account owner’s year of death:
Important if you are the trustee of a trust named as IRA beneficiary. The IRS mandates that trustees provide the fiduciary with a copy of the trust document or a summary list of the trust’s beneficiaries and conditions by this date. If this requirement is not met, or if the trust failed to meet certain other IRS requirements, it’s not considered a qualifying trust eligible for more favorable RMD calculations, usually based on the life-expectancy of the oldest trust beneficiary.
