Inherited IRA

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.

BREAKING DOWN '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. Extended IRA

    An IRA that allows a second generation beneficiary to continue ...
  2. Stretch IRA

    An estate planning concept that is applied to extend the financial ...
  3. IRA Asset Will

    A document that specifies how the assets in an individual retirement ...
  4. See-Through Trust

    A trust that is treated as the beneficiary of an individual retirement ...
  5. Five-Year Rule

    If a retirement account owner dies before the required beginning ...
  6. Secondary Beneficiary

    A person or entity that inherits assets under a will, trust or ...
Related Articles
  1. Retirement

    Inherited IRA and 401(k) Rules: Don't Run Afoul

    What you need to know when it comes to the complex rules for inherited IRAs and 401(k)s.
  2. Your Clients

    Top Estate Planning Tips for 401(k)s and IRAs

    Here's how to avoid estate planning pitfalls when it comes to leaving IRA and 401(k) assets to heirs.
  3. Retirement

    Inheriting an IRA: Tax Rules You Should Know

    Don’t get hit with a 50% penalty because you don’t know the required minimum distribution (RMD) rules for IRA beneficiaries.
  4. Investing Basics

    How Advisors Can Protect Inherited IRAs

    A new Supreme Court ruling has some financial advisors rushing to set up trusts to help protect inherited IRAs. Is that necessary?
  5. Retirement

    Designating A Trust As Retirement Beneficiary

    Designating a trust as your IRA beneficiary can be beneficial, but it requires proper planning to avoid problems.
  6. Retirement

    Traditional IRAs: Distributions

    By Denise ApplebyDistributions from Traditional IRAs must occur eventually. Until the owner reaches the mandatory distribution age, distributions are optional. The tax and penalty applied to ...
  7. Financial Advisors

    IRA Holders Face New Rules in 2015

    New rules for IRA holders mean less loopholes in 2015.
  8. Taxes

    4. Rolling Over an Inherited IRA

    Avoiding these five common tax mistakes can really pay off on your way to retirement
  9. Financial Advisors

    How to Handle Client Beneficiary Designations

    Beneficiary designations are a critical financial planning step that can be easily overlooked. Here's how to ensure they are properly done.
  10. Retirement

    SEP IRAs: Distributions

    By Denise Appleby Because the funding vehicle for an SEP is a Traditional IRA, the distributions rules of a Traditional IRA also apply to SEP assets.Traditional IRA Distributions. Distributions ...
RELATED FAQS
  1. If a trust is named as the beneficiary of an IRA, can the trustee of that trust become ...

    While the IRA owner is alive, only the IRA owner can change the designated beneficiary of the IRA. Exceptions may apply if ... Read Answer >>
  2. What are the rules when applying a stretch IRA strategy?

    Learn how to apply a stretch strategy to IRA and Roth IRA plans, and how tax-advantaged compounding may provide income for ... Read Answer >>
  3. Upon my death, will the beneficiaries of my IRA be compelled to take the entire amount ...

    It depends. If the beneficiary of your IRA is your spouse, he or she will be eligible to transfer the amount to his or her ... Read Answer >>
  4. Can the non-spouse beneficiary of an IRA name a successor beneficiary?

    Whether the beneficiary of an individual retirement account (IRA) can name a successor beneficiary (second generation beneficiary) ... Read Answer >>
  5. Can IRAs be held jointly by spouses?

    An individual retirement account (IRA) must be established and maintained on an individual basis. It cannot be held jointly. ... Read Answer >>
  6. Can I put my IRA in a trust?

    Learn the proper way to transfer ownership of your IRA to a trust. Consider how naming the trust as a beneficiary affects ... Read Answer >>
Hot Definitions
  1. Goodwill

    An account that can be found in the assets portion of a company's balance sheet. Goodwill can often arise when one company ...
  2. Return On Invested Capital - ROIC

    A calculation used to assess a company's efficiency at allocating the capital under its control to profitable investments. ...
  3. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  4. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  5. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  6. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
Trading Center