Inherited IRA

AAA

DEFINITION of 'Inherited IRA'

An individual retirement account that is left to a beneficiary after the owner's death. If the owner had already begun receiving required minimum distributions (RMDs) at the time of his or her death, the beneficiary must continue to receive the distributions as already calculated or submit a new schedule based on his or her life expectancy.


INVESTOPEDIA EXPLAINS 'Inherited IRA'

If the owner had not yet chosen an RMD schedule or reached 70.5 years in age, the beneficiary of the IRA has a five-year window to withdraw the funds, which will be subject to income taxes.

A spouse who receives an inherited IRA can choose to roll it over into his or her existing IRA accounts with no penalties. This option does not exist for non-spouse beneficiaries.

Tax laws surrounding inherited IRAs are quite complicated. Beneficiaries should seek the advice of a tax professional if they inherit an IRA.

Because IRAs are relatively new, look for more changes in tax laws over time as the number of inherited IRAs grows.

RELATED TERMS
  1. Contingent Beneficiary

    1. A beneficiary specified by an insurance contract holder who ...
  2. Designated Beneficiary

    The person who determines how long the retirement plan will survive ...
  3. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  4. Roth IRA

    An individual retirement plan that bears many similarities to ...
  5. Extended IRA

    An IRA that allows a second generation beneficiary to continue ...
  6. Traditional IRA

    An individual retirement account (IRA) that allows individuals ...
RELATED FAQS
  1. My mother inherited my father's IRA. When she died, I received an account application ...

    If your brother cannot be found, you may want to check with the IRA custodian and/or the financial advisor to find out if ... Read Full Answer >>
  2. What does U.S. law say about contingent beneficiaries?

    In the United States, posthumous asset transfers only require the listing of a primary beneficiary. Contingent beneficiaries ... Read Full Answer >>
  3. Places where I can open an IRA Account?

    An individual retirement account can be opened through a range of major financial institutions, including brokerage firms ... Read Full Answer >>
  4. How do I change my contingent beneficiary?

    Keeping your beneficiary designations up to date is an important aspect of comprehensive estate planning. Listing a primary ... Read Full Answer >>
  5. What kinds of assets can be included in a revocable trust?

    A revocable trust is an important part of estate planning. The trust document allows a living grantor to receive income from ... Read Full Answer >>
  6. What rate of return should I expect on my 401(k)?

    An employer-sponsored retirement plan such as a 401(k) can be a valuable tool in accumulating savings for the long-term. ... Read Full Answer >>
Related Articles
  1. Taxes

    Distribution Rules For Inherited Retirement Plan Assets

    If you've recently inherited a retirement plan, you must get to know the rules for distributing the funds.
  2. Retirement

    IRA Assets And Alternative Investments

    Interested in non-traditional investing? Make sure you follow the rules to avoid prohibited transactions.
  3. Retirement

    3 Deadlines For Retirement Plan Beneficiaries

    To take full advantage of new RMD regulations, beneficiaries need to take action before important deadlines.
  4. Retirement

    How IRA Contributions Affect Your Taxes

    Learn how to work with the tax man to avoid getting gouged when you convert your plans.
  5. Retirement

    Roth 401(k), 403(b): Which Is Right For You?

    Learn how to decide between a 401(k), 403(b) or Roth to help you build your nest egg.
  6. Economics

    What is a Fiduciary?

    A fiduciary is a person who acts on behalf of another person (or people) to manage assets.
  7. Retirement

    Top 7 Cities For Retiring In Thailand

    Beautiful Thailand has beaches, cities, affordable health care, plus cultural attractions and great cuisine, No wonder it's popular with expat retirees.
  8. Retirement

    Track Your Retirement Money With These Apps

    Try these four mobile and online apps to stay on top of your retirement income – in brokerage accounts, IRAs, 401(k)s, even Social Security.
  9. Professionals

    Advisors: Don't Overlook Not-Yet-Rich Millennials

    Financial advisors looking to grow their practices should focus on potential high-net-worth millennials.
  10. Retirement

    Top 10 Stocks for Retirement Portfolios

    Certain stocks are popular retirement portfolio options, but not all are as impressive as they used to be. Time to reevaluate?

You May Also Like

Hot Definitions
  1. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  2. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  3. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  4. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  5. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
  6. Marginal Utility

    The additional satisfaction a consumer gains from consuming one more unit of a good or service. Marginal utility is an important ...
Trading Center