Inherited Traditional IRA

The most popular type of IRA inherited by an IRA beneficiary is inherited traditional IRA. Below are some of the inherited IRA rules for a beneficiary who inherits a traditional IRA account.

Withdrawl of inherited IRA

When an IRA owner passes away and the designated IRA beneficiary has not distributed all of the IRA assets the registration or plating on this type of account will still include the original IRA owner's name, plus the name of the inherited IRA beneficiary.

Example: John Doe (DECD) FBO Mary Doe (BENE).

Required Death Distributions of traditional inherited IRA & tax treatments

The IRA beneficiary will take the Required Death Distributions from this inherited IRA account.

Distributions or withdrawl of the inherited IRA will be reported on IRS Form 1099-R, under the inherited IRA beneficiary's Social Security Number.

Distributions or withdrawl of the inherited IRA (from the decedent' s IRA) are not subject to the 10% premature distribution penalty, even if the spouse IRA beneficiary or non-spouse IRA beneficiary has not turned 59½ years old, but may be subject to ordinary income taxes.

Rename Inherited IRA - tax implications

If the surviving spouse IRA beneficiary is under age 59½, the spouse should consider keeping the IRA in the decedent' s name as an Inherited IRA. This is of particular importance if the spouse will need distributions before age 59½. By keeping the assets in a beneficiary IRA, any distribution may be subject to income tax but not the 10% penalty.

Inherited IRA rollover & tax penalty

When the surviving spouse inherited IRA beneficiary reaches 59½, the inherited IRA can be rolled into the survivor's IRA. This is called the inherited IRA rollover. If the surviving spouse rolled over the IRA and then needed a distribution before age 59½, the 10% penalty tax would be imposed, unless another Life Event Exception applies.