Inheriting an IRA

When you are notified that you will be inheriting an IRA, it is important to understand how this can impact your finances and any taxable implications.  Regardless of the dollar amount, it is easy to recognize it as a gracious gift, but be careful to fully understand your options.

The SECURE (Setting Every Community Up For Retirement Enhancement) Act of 2019, placed a rule into affect for inherited IRA’s called the 10-Year Rule.  Previously, those who inherited an IRA could “Stretch” out the years they would have to take Required Minimum Distributions (RMDs).  The SECURE Act has limited the stretch IRA to be used only by those who fall into the category of an Eligible Designated Beneficiary.  An Eligible Designated Beneficiary is one of three types of IRA beneficiaries.  

  1. Eligible Designated Beneficiary is a spouse, minor child, those who are not 10 years younger then the deceased, a disabled person, or one who is chronically ill.  
  2. Designated Beneficiary is someone who is a non-spouse. 
  3. Non-Designated Beneficiary is categorized as a Charity or Estate

The Designated Beneficiary must abide by the 10-Year rule and the Non-Designated Beneficiary is restricted to the 5-Year rule (Levine, Kitces, & Levine, 2020).

How you are impacted if you inherit an IRA from your spouse

As a surviving spouse you have options:

  • If the account value is not very large, you may want to consider a lump sum withdrawal, but this will be subject to 20% tax.  Example: After inheriting an IRA valued at $10,000 you decide to cash out, you will receive $8000 and pay 20% or $2000 in tax.   
  • You can take over the IRA as if it is your own by designating yourself as the owner
  • Rollover to your existing IRA or Roth IRA

If you take over or rollover while maintaining IRA status this will not be a taxable event.  If you choose to roll to a Roth IRA you will immediately incur tax, but down the road you will be able to distribute funds tax free (Yochim & Coombes , 2020).  

A Designated Beneficiary (10-Year rule, non-spouse beneficiary) may set up an inherited IRA 

If you are a Designated Beneficiary you will be eligible to take a full distribution and pay 20% tax or you can set up an Inherited IRA.  An Inherited IRA will be subject to the 10-Year rule which stipulates you must deplete the account within 10 years due to the elimination of the Stretch IRA for non-spouse beneficiaries.  This does allow more options to come into play.  As mentioned previously you can take a lump sum up front or you can trickle the distributions out as random lump distributions.  Another option is to take either monthly or annual distributions over the 10 years.  Finally, you can postpone upfront distributions and take a full distribution at year 10.  Bottom line, Uncle Sam requires you take the money out so taxes can be collected.  

The 5-Year rule did not change with the SECURE Act

The 5-Year rule which applies to Charities and Estates was not modified by the SECURE Act.  All funds must be distributed within 5 years of death if the decadent had not attained RMD age (currently age 72).  If the decedent had begun taking RMD’s the inherited IRA funds must be made over their original distribution projection (Levine, Kitces, & Levine, 2020).  

Be careful to consider the tax implications of IRA distributions 

Traditional and Inherited IRA’s grow tax deferred until distribution.  As you take distributions from an IRA not only do you pay tax, but the funds you receive are treated as earned income which potentially can push you into a higher tax bracket.  The timing of Inherited IRA distributions subject to10-Year rules should be considered.  Are you currently a high income earner or will you be retiring and having less earned income within the next 10 years?  Thinking out the timing of  distributions will be important.


Inheritance is a very special gift.  The 2019 SECURE Act has imposed new restrictions on how an Inherited IRA is handled based on spousal rules verses those facing 10-Year rules, no change to 5-Year rules.  Those falling in the 10-Year rule category (non-spouses), must take all funds from the account by year 10 after the deceased date of death.  Flexibility of the timing should be carefully considered so as to minimize the taxable implications.  Be sure to seek the counsel of both your tax professional and financial planner to maximize the benefit of this most gracious gift.   

About the Author

Author, Marianne Martini Nolte, Certified Financial Planner ™ practitioner, provides fee-only, fiduciary, independent financial services.  Her firm, IMAGINE FINANCIAL SERVICES (IFS) is a registered investment advisor offering advisory services in the State of California and in other jurisdictions where exempted.  Marianne’s focus is serving women and generations X, Y, and Z.  This article is intended as a high level view.  

All written content is for information purposes only. Opinions expressed herein are solely those of IFS, unless otherwise specifically cited.  Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. 

For more in depth information, please reach out:

Marianne Martini Nolte, CFP®

Imagine Financial Services 



Phone, (760) 472-5155


Levine, A., Kitces, T., & Levine, J. (2020, July 29). New SECURE Act Stretch IRA Rules For Eligible Designated Beneficiaries. Retrieved September 18, 2020, from 

Yochim, D., & Coombes, A. (2020, August 01). Inherited IRA Rules: 5 Must-Knows for Beneficiaries. Retrieved September 18, 2020, from