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A Guide to Rollover an Inherited IRA

  • Parkview Partners Capital Management
  • Jan 20
  • 3 min read

Understanding Inherited IRAs


An inherited IRA is a retirement account received by a beneficiary after the original account owner passes away. The rules governing inherited IRAs differ significantly from those that apply to accounts owned directly, and they vary based on factors such as the beneficiary’s relationship to the original owner and the timing of inheritance.


This guide provides a general educational overview of inherited IRA rollover considerations. Because the rules are complex and subject to change, individual circumstances should be reviewed carefully.


Two people at a desk, one signing documents while the other hands over an envelope for a trustee transfer.

Who Can Inherit an IRA


Inherited IRAs may be received by different types of beneficiaries, each subject to distinct rules.


Eligible Designated Beneficiaries


Certain beneficiaries are classified as eligible designated beneficiaries under current IRS rules. These may include:


  • Surviving spouses

  • Minor children of the account owner

  • Individuals with qualifying disabilities or chronic illnesses

  • Beneficiaries not more than 10 years younger than the original owner


These classifications can affect distribution options and timelines.


Non-Eligible Designated Beneficiaries


Most non-spouse beneficiaries fall into this category. Under current law, these beneficiaries are generally required to withdraw the entire inherited IRA balance within a defined period following the account owner’s death.


Understanding beneficiary classification is essential before evaluating rollover options.


Spousal Inherited IRA Options


Surviving spouses typically have the greatest flexibility when inheriting an IRA.


Common Options for Spouses


  • Treating the IRA as their own: Rolling assets into the spouse’s existing IRA or retitling the account

  • Maintaining an inherited IRA: Keeping the account as an inherited IRA with required distributions based on applicable rules


The choice may depend on age, income needs, and long-term planning considerations.


Non-Spouse Beneficiary Options


Non-spouse beneficiaries generally cannot roll inherited IRA assets into their own IRAs. Instead, assets are typically transferred into an inherited IRA established in the beneficiary’s name.


Distribution Considerations


  • Required distribution timelines apply

  • Withdrawals are generally taxable as ordinary income

  • Investment earnings remains tax-deferred until withdrawn


Planning around distribution timing may help manage tax exposure over the applicable period.


The 10-Year Rule Overview


Under current IRS regulations, many non-spouse beneficiaries must fully distribute inherited IRA assets within 10 years of the original owner’s death.


While annual distributions may not be required every year, the account balance must be reduced to zero by the end of the 10-year period. Strategic withdrawal timing can influence tax outcomes.


Required Minimum Distributions (RMDs)


Inherited IRA RMD rules depend on:


  • Beneficiary type

  • Whether the original owner had begun RMDs

  • Applicable IRS guidance


Failure to take required distributions may result in penalties, highlighting the importance of understanding applicable rules.


Tax Considerations


Withdrawals from inherited traditional IRAs are generally taxed as ordinary income. Roth inherited IRAs may offer tax-free distributions, provided certain requirements are met.


Key tax-related considerations include:


  • Current and projected income levels

  • Interaction with other taxable events

  • Impact on Medicare premiums or income-based thresholds


Tax planning is often an important component of inherited IRA strategy.


A paper displaying 'TAX STRATEGY' and a rising bar graph, surrounded by office supplies on a wooden desk.

Coordinating Inherited IRAs With Broader Planning


Inherited IRA decisions often intersect with broader financial planning topics, such as:


  • Retirement income planning

  • Estate planning and beneficiary designations

  • Charitable strategies

  • Long-term cash-flow needs


Coordination across planning areas may help align inherited assets with overall goals.


Importance of Professional Guidance


Inherited IRA rules are highly technical and subject to interpretation. Collaboration among financial advisors, tax professionals, and estate attorneys may help ensure compliance and thoughtful planning.


Reviewing inherited IRA decisions promptly after inheritance can help avoid unintended consequences.


Conclusion


Rolling over or managing an inherited IRA requires careful attention to beneficiary classification, distribution rules, and tax considerations. While options vary based on individual circumstances, understanding the framework of inherited IRA rules is an important first step in evaluating appropriate strategies.


Because regulations are complex and evolving, professional guidance is an important part of managing inherited retirement assets.



Investment advice offered through Stratos Wealth Partners, Ltd., a registered investment advisor. Stratos Wealth Partners, Ltd and Parkview Partners Capital Management are separate entities. Neither Stratos nor Parkview Partners Capital Management provides legal or tax advice. Please consult legal or tax professionals for specific information regarding your individual situation. Investing involves risk, including possible loss of principal. The information presented is for educational purposes only and should not be interpreted as individualized investment, tax, or legal advice. Past performance is not indicative of future results. For more information, please review our Form ADV, available upon request.


 
 
 

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Financial Advisor, Investment Advisor, High Net Worth, Wealth Management, Tax Planning, Risk Management, Financial Coordination, Retirement Planning, Charitable Giving, Columbus Ohio, Parkview Partners Capital Management

291 East Livingston Ave.
Columbus, OH 43215


Phone: (614) 427-2132

Fax: (614) 427-2132

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