Everything You Need to Know About Inherited IRA Rules

After marriage, most people include their spouses as direct beneficiaries of their IRAs in case something happens to them or they die of natural causes. This allows the surviving spouse to live a comfortable life after the passing of their loved one.

While inheriting one’s IRA can come as a sigh of relief, it can also become a burden and lead to excessive tax liability. It’s important for IRA beneficiaries to learn more about the rules that apply to inherited retirement accounts and their tax implications to avoid legal and financial troubles.

In this comprehensive guide, we will go over everything you need to know about inherited IRAs, including the tax rules and the various options available to the inheritors. Keep reading until the end, as we will also answer some of the most frequently asked questions.

Let’s get started!

Understanding Inherited IRAs

Understanding inherited IRAs is essential to understanding the options inheritors have and avoiding excessive taxes. Let’s learn more about inheriting an individual retirement account!

Definition of an Inherited IRA

An inherited IRA refers to an individual retirement account or an employer-sponsored retirement account, such as a 401(k), that a person opens after the original account owner’s death.

Since the heir has to move the financial assets from the original account to the newly set up IRA, an inherited IRA is also commonly referred to as a beneficiary retirement account.

Traditional IRAs vs. Roth IRAs

There are two types of IRA accounts that a person may inherit, and these are as follows:

• Inherited traditional IRA; and
• Inherited Roth IRA.

The difference between traditional and Roth IRAs is the tax implications, which we will explore in detail in the later sections of this article. In more detail, read our article about the differences between traditional and Roth IRA fees.

Importance of Required Minimum Distributions (RMDs)

Required minimum distributions (RMDs) refer to the minimum amount of money the inheritor must withdraw from the inherited IRA each year. Depending on the type of account and beneficiary, the RMD may vary.

Taking a required minimum distribution can help you avoid hefty penalties levied by the Internal Revenue Service (IRS) and make informed decisions about managing and distributing inherited assets.

The Impact of the SECURE Act on Inherited IRAs

In December 2019, former President Donald Trump signed the Setting Every Community Up for Retirement Enhancement (SECURE) Act, making it part of the law. 

The main idea behind this legislation was to improve the country’s retirement system. Let’s learn more about it in this section!

Introduction to the SECURE Act

Former US President Donald Trump introduced the SECURE Act to help Americans save money for their retirement by providing them with new and exciting saving opportunities. 

In 2022, the government added additional provisions in a bid to expand access to retirement plans and encourage citizens to become part of it.

Elizabeth Kelly, senior vice president at United Income, stated in a recent press conference that while the SECURE Act is a step in the right direction, some changes still need to be made. This law is a major change in the United States retirement system in over a decade.

A 2019 Bankrate survey revealed that more than half of Americans are behind on their retirement contribution payments, while 20% of adults are not saving money.

According to the Bureau of Labor and Statistics, 33% of the workforce in the private sector does not have access to retirement plans. The numbers and outlook for part-time workers and employees working in SMEs are even more grim.

While some businesses offer both a retirement plan and a 401(k), around 54% of the employees working in companies with fewer than 100 workers only have access to the employer-sponsored 401(k). 

Kelly urged the need for access to more retirement plans and an autonomic enrollment facility to ensure that everyone is ready for the time when they exit the workforce.

The 10-year Rule Explained

The SECURE Act impacts retirement plans in many different ways, including the new 10-year rule. What is it, and how does it affect an inherited 401(K) or IRA? Let’s find out!

Prior to the implementation of the SECURE Act, individuals could stretch out the balance of an inherited IRA or 401(k) over their lifetime. After the changes in the law, account holders must withdraw the balance within 10 years.

The 10-year rule in the SECURE Act discourages people from using the inherited 401(k) or IRA as a tax-deferred vehicle. That said, there are some exceptions to the newly made changes.

Exceptions to the 10-year Rule

While the SECURE Act requires 401(k) or IRA inheritors to ensure the proper distribution of assets within 10 years, there are some exceptions to the rule. These include the following:

• Inheritors who have a chronic illness or disability; and
• The surviving spouse or minor child of the original account owner.

Rules for Spouses Inheriting IRAs

The rules for spouses inheriting a traditional, rollover, SEP, or SIMPLE IRA differ from those inheriting a Roth individual retirement account.

In this section, we will explore the four different options available for spouses for an inherited Roth IRA and a traditional IRA.

The Spousal Transfer Option

If an account holder with a SIMPLE, SEP, rollover, or traditional IRA dies before their required minimum distributions (RMD) date begins, their spouse can transfer the assets to their existing or a new individual retirement account. 

While the money is available anytime for withdrawals, the IRS imposes a 10% penalty on early withdrawals (before the age of 59½).

Here are a few considerations that the inheriting spouse must take into account when the decedent (the original account owner) leaves behind a SIMPLE, SEP, rollover, or traditional IRA:

• The money is only available to the spouse if they are the sole beneficiary;
• Spouses can also designate their own IRA beneficiaries;
• The assets in the IRA can continue to grow tax-deferred; and
• Spouses may face a 10% penalty for early withdrawals unless they meet one of the IRS penalty exceptions.

Suppose an account holder with a SIMPLE, SEP, rollover, or traditional IRA dies after they reach 73 years of age (minimum age for required minimum distributions). In that case, everything mentioned above remains the same. 

However, the spouse inheriting the IRA must take the RMD for the year of death (if the original account owner did not take it prior to their death) and must pay the 10% penalty for early withdrawals if they’re under the age of 59½.

Roth IRA and Spousal Transfer

The conditions of the spousal transfer option are different if the spouse inherits a Roth IRA. They must transfer the assets into a new or an existing Roth individual retirement account and can withdraw at any time as long as they meet the five-year holding period. However, the earnings are taxable until the inheriting spouse reaches the age of 59½.

There are a few considerations that the spouse must keep in mind when inheriting a Roth IRA, and these include the following:

• The spousal transfer is only available if the spouse is the sole beneficiary.
• There are early withdrawal penalties, and the rules of a Roth IRA will apply to the inherited account.
• The spouse can designate their own IRA beneficiary.

Inherited IRA Options for Spouses: Life Expectancy Method

The second option for spouses inheriting an IRA is the life expectancy method. Under IRS guidelines, the spouse who inherits a SIMPLE, SEP, rollover, or traditional IRA must transfer the assets to an inherited individual retirement account, which they must hold in their name.

It’s important to note that under the life expectancy method, RMDs are mandatory, and the spouse has the option to postpone distributions. However, the new account holder can only delay distributions until the year the decedent would’ve turned 73 or on the last date of December following the year of death, whichever is later.

Here are some important considerations for a spouse inheriting a SIMPLE, SEP, rollover, or traditional IRA:

• The distributions under this option are typically spread across the spouse’s single life expectancy.
• If there are several beneficiaries of the IRA, everyone must have their own separate account by the end of December following the year of death.
• The required minimum distributions are mandatory, and the spouse must pay taxes on each distribution that they receive.
• There is no early withdrawal penalty under the life expectancy method.
• Spouses can let undistributed assets grow tax-deferred and designate their own IRA beneficiary.

Suppose the original account owner of a SIMPLE, SEP, rollover, or traditional IRA dies after they reach 73 years of age. In that case, the spouse must transfer the assets into an inherited IRA that is held in their name and start taking distributions by the end of the year following the death of the decedent.

It’s important to note that if the original account owner did not take an RMD for the year they died, the spouse must take the distribution by the end of December of the same year.

The following are a few considerations that the inheriting spouse must take into account when the original account owner leaves behind a SIMPLE, SEP, rollover, or traditional IRA:

• Distributions from the inherited IRA are typically spread across the spouse’s single life expectancy or the remaining life expectancy of the deceased account holder, whichever is longer.
• In the event of multiple beneficiaries, everyone must have their own separate account by the end of December following the year of death.
• The required minimum distributions are mandatory, and the spouse must pay taxes on each distribution that they receive.
• There is no early withdrawal penalty under the life expectancy method.
• Spouses can let undistributed assets grow tax-deferred and designate their own IRA beneficiary.

Roth IRA and Life Expectancy Method

When a spouse inherits a Roth IRA, they must transfer the assets into a new or an existing Roth individual retirement account. Under the rules of the Roth IRA, RMDs are mandatory, and the spouse has the option to postpone distributions.

However, the new account holder can only delay distributions until the year the decedent would’ve turned 73 or on the last date of December following the year of death, whichever is later.

The considerations for inheriting a Roth IRA under the life expectancy method are as follows:

• Distributions from the inherited IRA are typically spread across the spouse’s single life expectancy.
• In the event of multiple beneficiaries, everyone must have their own separate account by the end of December following the year of death.
• There are no taxes on distributions as long as the spouse meets the five-year holding period.
• There are no early withdrawal penalties.
• Spouses can let undistributed assets grow tax-deferred and even designate their own IRA beneficiary.

Inherited IRA Options for Spouses: 10-year Method

If the original account owner of a SIMPLE, SEP, rollover, or traditional IRA dies before they reach the age of required minimum distributions, the spouse can opt for the 10-year method.

Under the 10-year option, the spouse must transfer all of the assets into their existing or new IRA. While they can withdraw money at any time until the end of December of the tenth year following the year of the decedent’s death, they must distribute all of the assets within the time frame.

The key considerations that spouses inheriting a SIMPLE, SEP, rollover, or traditional IRA under the 10-year method are as follows:

• There are taxes on each distribution.
• Spouses do not have to pay early withdrawal penalties.
• New account holders can grow undistributed assets tax-deferred for up to 10 years.
• Spouses can designate their own IRA beneficiaries.

Roth IRA and the 10-year Method

A spouse who inherits a Roth IRA can opt for the 10-year method. Under this option, they must transfer all of the money to an inherited Roth IRA that is under their own name. 

What’s great about the 10-year method for an inherited Roth IRA is that the money is available any time until the end of December of the tenth year following the year of the decedent’s death. After that, it’s crucial to distribute all of the assets.

The following are the main considerations that spouses should take note of when inheriting a Roth IRA and opting for the 10-year method:

• There are no taxes on distributions as long as the spouse meets the five-year holding period.
• There are no early withdrawal penalties.
• Spouses can let undistributed assets grow tax-free for up to 10 years and even designate their own IRA beneficiary.

The Lump Sum Distribution Option

Besides the spousal transfer, life expectancy, and 10-year method, there is another method for spouses if the original account owner of a SIMPLE, SEP, rollover, or traditional IRA dies before they reach the age of required minimum distributions. It’s commonly referred to as a lump sum distribution option.

Under the lump sum distribution option, there is no need for an account, as the spouse receives all of the assets in the IRA directly. This means that the spouse has access to all of the funds at any time. However, they will have to pay income taxes on the distributions all at once.

What’s great about the lump sum distribution option is that the spouse does not incur any early withdrawal penalties. However, the funds might push their income into a higher tax bracket. This is something that the spouses must consider.

Suppose the original IRA owner dies after they reach the age of required minimum distributions. In that case, the spouse still has the option to choose the lump sum distribution option. Everything mentioned above applies here as well.

Rules for Non-spouses Inheriting IRAs

There are several withdrawal options for non-spouse beneficiaries inheriting IRAs, each with its own set of rules. Before we get into the available options, it’s essential to understand what an eligible designated beneficiary is.

Identifying Eligible Designated Beneficiaries

People can inherit an IRA from a decedent even if they are not their spouse. They are often referred to as eligible designated beneficiaries and include the following:

• The decedent’s minor children;
• People who are chronically ill or are suffering from a disability; and
• Individuals who are up to 10 years younger than the original IRA owner.

The retirement system automatically categorizes people who do not fall in the category of eligible designated beneficiary as a designated beneficiary if the original IRA owner died after 2019. In such situations, they must:

• Distribute all of the assets by the end of the tenth year following the year of death of the deceased account holder; and
• Take RMDs during the 10 years if the original account holder was 73 years of age before they died.

People who fall under the eligible designated beneficiary category if they inherit a traditional, rollover, SEP, or SIMPLE IRA have the following withdrawal options:

Inherited IRA Options for Non-spouses: Life Expectancy Method

The life expectancy method requires non-spouses to transfer the assets to an inherited IRA that is held under their own name. Under this option, the new account holder must take RMDs no later than the end of December of the year after death.

Here are a couple of considerations that non-spouses must take into account when inheriting a traditional, rollover, SEP, or SIMPLE IRA:

• Distributions from the inherited IRA are typically spread across the spouse’s single life expectancy.
• In the event of multiple beneficiaries, everyone must have their own separate account by the end of December following the year of death.
• There are no taxes on distributions as long as the spouse meets the five-year holding period.
• There are no early withdrawal penalties.
• Spouses can let undistributed assets grow tax-deferred and even designate their own IRA beneficiary.

The life expectancy method is also available to eligible non-spouses when the original account holder dies after they reach the age of taking RMDs. 

In such situations, the new account owner will receive RMDs by December 31 of the year after death. The considerations mentioned above about distributions, multiple beneficiaries, taxes, early withdrawal penalties, and growing assets tax-deferred will apply here as well.

An important thing to remember is that if the eligible designated beneficiary is a minor, the life expectancy method will not apply when they turn 21. The retirement system will use the 10-year method instead.

Roth IRA and Non-spouse Eligible Designated Beneficiary

Non-spouses eligible for the inherited Roth IRA can also choose the life expectancy method. Under this option, the non-spouse must transfer all of the assets into their own inherited Roth IRA that is under their own name.

RMDs under the life expectancy option for non-spouses inheriting Roth IRAs are mandatory, and the distributions should begin before the end of December of the year following the year of the original account holder’s death.

Here are a few key considerations that non-spouses who are looking to opt for the life expectancy method for an inherited Roth IRA should take note of:

• The life expectancy method lets the new account owner spread the distributions over their single life expectancy.
• In the event of multiple beneficiaries, everyone must have their own separate account by the end of December following the year of death.
• There are no taxes on distributions as long as the spouse meets the five-year holding period.
• There are no early withdrawal penalties.
• Spouses can let undistributed assets grow tax-deferred and even designate their own IRA beneficiary.

Inherited IRA Options for Non-spouses: 10-year Method

If the original traditional, rollover, SEP, or SIMPLE IRA owner died before taking their first RMD, the eligible designated beneficiary (non-spouse) can also opt for the 10-year method. They must transfer the assets into an inherited IRA that is under their own name.

Under the 10-year method, the non-spouse can take money anytime until the end of the tenth year following the year in which the original IRA owner died. After that, the eligible designated beneficiary must distribute all of the inherited assets.

The following are a couple of considerations that non-spouses must keep in mind if they’re inheriting a traditional, rollover, SEP, or SIMPLE IRA:

• There are taxes on each distribution.
• Non-spouses do not have to pay early withdrawal penalties.
• New account holders can grow undistributed assets tax-deferred.
• Non-spouses can designate their own IRA beneficiaries.

Roth IRA and Non-spouse Eligible Designated Beneficiary

People who are inheriting a Roth IRA and opting for the 10-year option must transfer all of the assets in an inherited Roth IRA that is under their own name. They can make withdrawals any time until the end of December of the tenth year following the year of the decedent’s death. After that, they must distribute all of the funds in the retirement account.

The following are a few considerations that non-spouses who are inheriting Roth IRAs should keep in mind if they opt for the 10-year option:

• Non-spouses can spread the distributions as they like. However, they must withdraw all of the assets by the end of December of the tenth year following the year of the decedent’s death.
• There are no taxes on the distributions as long as the non-spouses meet the five-year holding period.
• The inherited Roth IRA under the 10-year option does not have any early withdrawal penalties.
• Non-spouses can also designate their own IRA beneficiaries.
• The inherited Roth IRA can continue growing the undistributed assets tax-free for up to 10 years.

The Lump Sum Distribution Option

Suppose the original traditional, rollover, SEP, or SIMPLE IRA owner died before the date they became eligible for taking RMDs. In that case, the non-spouses may opt for the lump sum distribution option. There is no need for an account, and the IRA makes all of the distributions to the eligible designated beneficiary.

Under the lump sum distribution option, non-spouses can withdraw all of the money at once without incurring any early withdrawal fees. An important thing to note is that the eligible designated beneficiary may fall into a higher tax bracket depending on the distribution amount.

If the original traditional, rollover, SEP, or SIMPLE IRA owner died after the date they became eligible for taking RMDs, all of the considerations mentioned above remain the same. Also, the non-spouse must pay income taxes on the distribution all at once.

Roth IRA and Non-spouse Eligible Designated Beneficiary

Those non-spouses who are inheriting a Roth IRA and opting for a lump sum distribution option do not need to open an account, as all of the assets are directly distributed to them. 

The recipient also has access to all of the money in the individual retirement account, and as long as they meet the five-year holding period, there won’t be any taxes on the distributions.

Another key consideration to note for all of the non-spouses who are inheriting a Roth IRA through the lump sum distribution option is that there is no early withdrawal penalty.

Tax Considerations for Inherited IRAs

The tax implications vary depending on the type of account and distribution method. An experienced financial planner can guide the inheritors on the taxes they have to pay and the different strategies they can use to reduce their tax liability.

In this section, we will quickly go over the taxation rules for a traditional and Roth IRA and also the different strategies you can use to reduce your tax bill.

Taxation Rules for Traditional IRAs

Before the SECURE Act, many individuals who would inherit traditional IRAs could reduce their tax liability by using different tactics, including extending withdrawals over their life expectancy. Those who inherited an IRA before 2020 can still use these tactics.

However, the recent changes are not good news if you’ve inherited a traditional IRA after 2020, as the SECURE Act puts an end to the tax savings strategies used by inheritors in the past.

Another thing to note is that once the original IRA owner starts taking RMDs, you cannot put a stop to it after their death. To avoid confusion, the IRS waived the penalties for inheritors who did not take the required minimum distributions for 2021, 2022, and 2023. 

However, individuals must take distributions in 2024, which is why they need to work with an experienced financial planner to help create effective strategies.

The IRS treats the distributions from a traditional IRA as income, which means that the new account holder must pay federal and, in some cases, state taxes. 

Waiting until year 10 to distribute all of the inherited IRA assets could push the inheritor into a higher tax bracket, leading to a mammoth tax bill upon withdrawal.

Taxation Rules for Roth IRAs

Setting up a Roth IRA can help reduce some of the tax issues that arise in estate planning, simplifying the entire process of inherited IRAs.

In a Roth IRA, any assets that get passed down to the heirs due to the death of the original account owner are tax-free. The recipient of the inherited Roth IRA does not have to pay taxes on the principal. However, there are still some taxes that you must pay.

Any spouse who inherits a Roth IRA must hold the money in the account for at least five years. The new account holder must also reach the age of 59 ½ to withdraw the earnings tax-free. Unable to meet these requirements may result in tax implications.

Spouses can also enjoy tax-free withdrawals in an inherited Roth IRA if they decide to take a lump sum distribution, as long as they meet the five-year holding period. Otherwise, they may have to pay taxes on the earnings.

There are different distribution options to choose from with various tax implications. It’s crucial for the receiving spouses or heirs to do their research to determine which one is the best for them. 

That said, the Roth IRA does help reduce the tax impact, making it easier for people to decide what they want to do with the money.

Effective Strategies to Minimize Tax Liability

There are two options to choose from if you’re inheriting an IRA, and these include the following: 

• Taking all of the money and paying taxes; or 
• Transferring funds to a new IRA that is under your name to give you enough time to strategize a minimum tax liability.

Any inheritance after January 1, 2020, will be subject to the 10-year rule placed by the SECURE Act. However, those who are beneficiaries of the IRA and fit into one of the exception categories are not obligated to withdraw all of the funds from the retirement account.

Spouses who inherit an IRA have a third option available to them. They can transfer the funds into their existing IRA and start taking RMDs after the age of 72. 

However, they may be subject to an early withdrawal penalty if they make withdrawals before 59 ½, which may not be a big issue if you are older than 59 ½ or are not planning to withdraw any time soon. 

When your spouse or loved one passes away, you may not be able to plan effectively, especially during the mourning period. It’s important to reach out to a skilled financial planner to help develop tax-minimizing strategies and help you make the most of the inheritance money.

Managing Your Inherited IRA: A Comprehensive Guide

Managing an inherited IRA can get complicated, especially if you don’t know how to calculate withdrawals or deal with multiple beneficiaries. In this section, we will quickly go over a couple of essential things to help you get started!

How to Calculate Withdrawals

Calculating withdrawals for an inherited IRA can be complex, especially if you don’t know about the IRA withdrawal rules. There are a lot of things to consider, including the date of the original owner’s death, the type of account, the IRA owner’s age, beneficiary type, and balance, among other things. 

It’s best to use online RMD calculators from reputable websites to simplify the calculation process.

Dealing with Multiple Beneficiaries

In case there are multiple beneficiaries, there may be different rules that one must follow to ensure compliance with the IRS regulations. 

It’s best to split the IRA into separate accounts if there are different types of beneficiaries (spouse and non-spouse). Make sure you do this before the end of December of the year following the year of the original owner’s death.

Understanding the Special IRA Transfer Rules

Depending on the type of beneficiary, the transfer rules may vary. Spouses can transfer the funds from an inherited IRA into their existing retirement accounts, while non-spouses must maintain the balance in a newly set up inherited IRA.

Perspectives on Inherited IRAs

When inheriting an IRA, there are unique circumstances and factors that can vary from one group of individuals to the other. Beneficiaries, for example, may be concerned about managing the retirement account, while a tax advisor may look at the tax implications.

In this section, we will explore the unique perspectives on inherited IRAs across different groups of individuals.

Beneficiary’s Perspective: Managing an Inherited IRA

When you inherit a traditional or Roth IRA, you may have some concerns about managing the IRA. From withdrawal inherited IRA rules to potential tax implications, distribution options, and asset allocation, there are many things beneficiaries must think about. It’s important to reach out to an experienced financial planner to help guide them through this process.

Tax Advisor’s Perspective: Minimizing Tax Implications

A tax advisor has the knowledge and skills to provide guidance on the tax implications of an inherited IRA. They may discuss the beneficiary’s financial requirements before conducting a comprehensive tax assessment.

By properly assessing the tax implications of an inherited IRA, a tax advisor is able to develop a distribution plan and devise strategies that not only align with the beneficiary’s financial goals but also help minimize their tax liability.

Another important consideration for a tax advisor is the changes in the tax laws pertaining to inherited IRAs. By keeping themselves updated on IRS rules, tax professionals can provide guidance to beneficiaries, helping them avoid financial and legal troubles with the authorities.

Financial Advisor’s Perspective: Maximizing Financial Benefits

A financial advisor plays a crucial role in guiding the beneficiaries in maximizing their financial benefits. They have the skills to develop a plan that aligns with the beneficiary’s investment goals.

By working with the beneficiaries and understanding their risk tolerance, investment goals, and time horizon, a financial advisor can help with asset allocation and frequently review the beneficiary’s portfolio to adjust the investments accordingly.

Besides asset allocation and portfolio assessment, a financial advisor may also look at conversion options or explore opportunities for a strategic rollover. These strategies help with growing your wealth and maximizing the financial benefits.

Legal Perspective: Understanding Legal Obligations and Rights

There are legal implications of inheriting an IRA. Legal advisors can help beneficiaries navigate the complex laws and rules pertaining to retirement accounts.

In some cases, there may be multiple beneficiaries, which could lead to disputes. A legal advisor can help resolve these issues by working toward solutions that adhere to local and federal laws.

Legal advisors can also educate the beneficiaries on the distribution rules and address any legal issues that may arise during estate planning. This can help you make an informed decision while ensuring compliance with the laws.

Frequently Asked Questions

What Are the New Rules for Inherited IRAs from 2023 Onwards?

While an inherited IRA is a welcome surprise, there are specific rules that come with accepting the gift. Due to the changes in the new law, some heirs may have less time to distribute all of the assets in the retirement account.

The rules of inherited IRAs are complex and depend on the type of account, the date of the original owner’s death, whether they started taking RMDs, and the type of beneficiary. 

It’s best to work with an experienced financial planner to help you circumnavigate the pitfalls and avoid legal and financial trouble with the IRS.

Do All Inherited IRA Funds Need to Be Distributed Within 10 Years?

Non-spouse beneficiaries must distribute all of the funds within 10 years. However, there are certain exceptions to the 10-year rule. 

Eligible designated beneficiaries, such as minor children and people with chronic illnesses, can stretch out the distributions over their life expectancy.

What Are the Tax Implications of an Inherited IRA?

The tax implications of an inherited IRA depend on the type of retirement account. Spouses can delay distributions until they reach the age where they have to start taking RMDs. 

On the other hand, non-spousal beneficiaries are subject to the 10-year rule. This can impact the amount of tax the inheritor has to pay.

Unlike a traditional IRA, Roth IRAs offer several tax advantages. There is no immediate tax impact for spouses, while non-spouse beneficiaries do not have to pay taxes on qualified distributions.

How Can I Avoid Paying Taxes on an Inherited IRA?

A person inheriting an IRA must pay significant taxes on a single lump sum withdrawal. It’s best to spread the over the years to keep taxes as low as possible.

What Are the Differences Between Spousal and Non-spousal Inherited IRAs?

There are some key differences between spousal and non-spousal inherited IRAs, some of which include the following:

• Spouses have more flexibility, as there are many options available to them. On the other hand, non-spouses may have to take RMDs immediately.
• The tax implications may also vary depending on the type of account.
• Non-spouses cannot transfer the funds from an inherited IRA to their existing retirement account.

Conclusion

To ensure effective financial planning and reduce tax liability, it’s crucial to understand all of the inherited IRA rules and how they apply to your situation. 

While it can get confusing to wrap your head around the latest legislation and regulations, you can always reach out to an experienced financial planner for assistance.