Considerations for Your IRA Designated Beneficiary

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Key Takeaways

  • Traditional IRA owners must start taking required minimum distributions (RMDs) at age 72 (increasing to age 73 in 2023 and 75 in 2033) based on life expectancy tables.
  • The SECURE Act changed rules so most non-spouse beneficiaries must withdraw all inherited IRA funds within 10 years.
  • Spouses have the most flexibility on managing inherited IRAs - they can treat the IRA as their own.
  • Trust funds can provide more control over inherited IRA assets for beneficiaries you worry may not manage money well.
  • Taxes owed on inherited IRAs depend on if it is a traditional or Roth IRA. Withdrawals from inherited traditional IRAs are taxable income for beneficiaries.

For any individual retirement accounts (IRAs) you hold, you've been asked to name a beneficiary. This is the person or legal entity that will inherit your account after you pass away. This decision may have long-lasting financial implications for your beneficiary, particularly when it comes to calculating the inheritance tax.

This tax may fluctuate dramatically depending on who you've named as your IRA designated beneficiary. Planning for this has taken on new importance since the federal SECURE Act, which took effect in 2020, changed the tax rules for any non-spouse IRA beneficiary.

Here's a look at what to expect depending on what type of IRA you have and who you've selected as your beneficiary.

IRA Required Minimum Distributions

One of the key benefits of a traditional IRA is that it delays taxes on your contributions and investment gains (if any). However, the IRS doesn't allow you to delay those taxes forever. Rules for required minimum distributions (RMDs) dictate the pace by which money must come out.

As the original account holder, you need to start taking RMDs at age 72, age 73 if you reach age 72 after December 31, 2022, and age 75 for participants attaining age 74 in 2033 or later.1 The IRS sets a schedule showing what percentage of your account balance you need to take out each year based on your expected life expectancy. If you don't spend down the entire account before passing away, your beneficiary takes over and has their own timetable for RMDs.

In the past, any IRA designated beneficiary could spread the withdrawals over their own expected lifetime. This could help them spread out the tax bill. However, the SECURE Act of 2020 changed the rules. Now, many types of beneficiaries must take all the money out within 10 years of the inheritance.

Types of IRA Beneficiaries

As mentioned above, you have a number of options for naming a beneficiary for an IRA. Here are the different types to consider:


Spouses have the most flexibility and options for managing an inherited IRA. They could transfer the funds directly into their own IRA, 401(k) or other retirement plan.2 They could also name themselves the new owner of your IRA and make more contributions to the account. These options do not exist for a non-spouse IRA beneficiary. Your spouse would then need to follow the RMD rules for their own retirement plan as if they had saved that money themselves.

If you are younger than 72 when you pass away, your spouse could elect to delay taking money out until the date you would have turned 72. They would need to spread the withdrawals over their remaining lifetime. They could also elect a 10-year withdrawal window from the day you died with the requirement to take everything out within 10 years of your death. They might use these strategies if they were older than you and wanted to delay withdrawals.

If you are older than 72 when you pass away, your spouse could spread the RMDs over their own life expectancy. If they need money sooner, they can make earlier withdrawals. All these options give them more flexibility to delay withdrawals and taxes while continuing to grow the IRA balance.

Beneficiaries Not Less Than 10 Years Younger Than You

If you name someone who is within 10 years of your age as a beneficiary, they also get more flexibility with IRA RMDs. This could be a sibling, a cousin, a partner or someone else who is similar to your age.

When they inherit your IRA, they can elect to spread the RMDs over their own life expectancy. This could come in handy especially if you pass away young. For example, if you were to die at 45 and your brother inherited your funds at 43, he would have time to delay the taxes until his own retirement. Alternatively, your beneficiary could choose to withdraw all the IRA money within 10 years of receiving the inheritance.

Beneficiaries More Than 10 Years Younger Than You

If your IRA designated beneficiary is more than 10 years younger than you, like a niece or nephew, they have less flexibility. They must make all withdrawals within 10 years of inheriting the IRA. Before the passage of the SECURE Act, these younger beneficiaries were also allowed to make lifetime withdrawals. Now they must take all the money out and pay any owed taxes within a decade of inheriting your IRA.

Minor Children

A minor is someone who has not reached the age of majority in your state. This is typically age 18 but could be higher depending on where you live. Technically, a minor is not allowed to inherit property. If you name them as the beneficiary of your account, a guardian will manage the account and all withdrawals on their behalf. The minor would only take over the money after reaching the age of majority.

Most minor beneficiaries still need to withdraw everything within 10 years, but there is an exception if it's your child. In that case, they get more time to delay the withdrawals. When they first inherit the IRA, the RMDs are based on your minor child's expected life expectancy as determined by the IRS tables. The withdrawal percentage will be quite small considering they are so young and have a long life expectancy. Once your beneficiary reaches the age of majority, they'll need to take out everything within 10 years.3

For example, if you leave your IRA to your 8-year-old daughter when you pass away, she would be able to withdraw RMDs based on her life expectancy for 10 years, until she turns 18. At that point, she'll have a 10-year window to take out whatever is left over. Accordingly, she would need to complete drawing down the IRA by age 28.

One downside of leaving your IRA to a minor is that you might worry whether they could responsibly handle the money at such a young age. In such a case, a trust fund could be a solution.

Beneficiaries Who Are Chronically Ill or Disabled

If you have a family member or another loved one with a chronic illness or disability, you could name them the beneficiary as well. Beneficiaries in this category are allowed to spread withdrawals over their lifetime. This gives them more room to invest and budget the inheritance. Like other individuals, they could also opt to take the money out within 10 years.

One potential drawback of leaving your IRA to a special needs family member is that it could disqualify them from government benefits, such as Medicaid and Social Security Supplemental Security Income (SSI). These programs require people to have minimal assets. For example, an individual can only qualify for SSI if they have less than $2,000 in assets.4 To avoid this issue, you could create a special needs trust for your IRA instead.

Trust Funds

A trust fund is a type of legal structure. It holds property and money on behalf of another person: the trust's beneficiary. You could set up a trust and name it to be the beneficiary of your IRA. The trust would take over the IRA at your death, receive the RMDs and distribute the money to your loved ones according to your instructions.

Using a trust can have several inheritance benefits. It can shield the assets against any legal troubles of your beneficiary, such as a divorce or pending lawsuit. It also lets you set limits for minors or other beneficiaries you worry will spend the money too quickly. Last, a special needs trust could help protect the government benefits of a special needs family member.

There are many different types of trust funds. The trust tax rules for an inherited IRA and its RMDs will depend on what kind you use and the trust beneficiary. Consult a legal professional as you decide which makes the most sense.


If you want to support your favorite charity after death, you could name it as the beneficiary of your IRA. Since a charity is tax-exempt, it could take out your retirement funds without owing income tax on the withdrawals. This could help create a more effective inheritance strategy. For example, you give your IRA to charity while leaving more tax-effective assets, like life insurance, to your other beneficiaries.


Your estate is the total value of all your property after death minus any outstanding debts. When you die, your will explains how to distribute everything. The state courts oversee this distribution through a legal process called probate.

When you name a beneficiary on your IRA, it skips the probate process. Your beneficiary receives the money much more quickly because they don't have to wait on court approval. If you don't name a beneficiary on your IRA, the account will go into your estate instead. An IRA could also go into your estate because you listed your estate as the beneficiary or because your primary beneficiary has already died. (Naming a backup contingent beneficiary can prevent this problem.)

Having the estate receive the IRA first delays when your beneficiaries are able to take over the account. They'll need to wait on probate first. It could also expose your retirement funds to creditors for any of your unpaid debts at death. Another drawback is that the estate has very little flexibility for IRA withdrawals. If you die before starting RMDs at age 72, your beneficiaries must take all the money out of your IRA within ten years. If you die after starting RMDs, your beneficiaries would need to take the withdrawals over your remaining expected life expectancy at death as calculated by the IRS. Both situations limit your family's ability to delay taxes.

Tax Rules for Different IRA Types

The taxes owed depend on what type of IRA you pass on as an inheritance. Here's what you and your beneficiaries could expect for the most common types.

Traditional IRAs

If you funded a traditional IRA with pre-tax contributions, you'll owe income tax on 100% of the withdrawals when you take money out of it. The same applies to your beneficiary when they inherit the account. If they fall into a category where they need to withdraw everything within 10 years of the inheritance, it could significantly increase their taxes.

Not only would they owe income tax on the traditional IRA withdrawals, but also the extra income could push them into a higher tax bracket. They would then owe more taxes on their other income. It may even affect their eligibility for benefits. For example, they might go beyond the income limits where they could fund their own Roth IRA.

If you plan on leaving behind a traditional IRA, make sure to discuss the tax implications with your IRA designated beneficiary. This is especially important if you're leaving it to a non-spouse IRA beneficiary.

Roth IRAs

With a Roth IRA, you fund the account with after-tax dollars. You don't get an upfront tax deduction for contributions. In exchange, your withdrawals (including investment gains) are typically tax-free. To receive the tax-free withdrawals, you must have had the account for at least five years and be older than 59 and a half.

Your beneficiary receives the same tax break. If you owned the account for less than five years before passing away, your beneficiary would need to wait for this timeframe before they could make tax-free withdrawals of the investment gains. They can take out your contributions tax-free whenever they wish, though.

Beneficiaries would still need to follow the normal RMD withdrawal timeline, depending on what type of beneficiary they are. However, the withdrawals wouldn't increase their taxes if the account is at least five years old.

Rollover IRAs

A rollover is when you transfer an IRA from one retirement plan provider to another. It's basically only changing the company that manages your investments. If you make a rollover between the same type of accounts, the tax rules stay the same for you and your beneficiary. In other words, a rollover from a traditional IRA to another traditional IRA or a Roth IRA to another Roth IRA won't have an impact.

What would change the tax implications is if you make a rollover from a traditional IRA to a Roth IRA, known as a Roth conversion. In this case, you would owe taxes upfront on the amount transferred over. Going forward, your gains would grow income tax-free, and your account would be treated like a Roth IRA for your beneficiary. If you can afford the tax bill yourself, this could be a way to help your IRA designated beneficiary reduce the taxes on their inheritance.

Inherited IRAs

If you've already inherited an IRA from someone else, your beneficiary is called a successor beneficiary.5 They are inheriting a previously inherited IRA. Their withdrawal timeline depends on a couple of factors. If you inherited the IRA before the launch of the SECURE Act in January 2020, your successor beneficiary would get another 10 years to take the money out from the date of their inheritance.

If you inherited the IRA after the SECURE Act went into effect, it depends on the type of beneficiary they are. If you pick someone in one of the categories with more flexibility — such as your spouse, someone within 10 years of your age, a disabled person or your minor child — they get 10 years from the date they inherited the IRA. For other beneficiaries, they would need to follow your original 10-year clock. For example, if you die five years into your 10-year schedule, your successor beneficiary would only have five years left to take out the remaining funds.

The Bottom Line

As you can see, the IRA beneficiary rules are complicated — not to mention subject to ongoing changes in tax regulations. Yet with a well-designed strategy, they also give you and your beneficiaries considerable flexibility over managing the taxes.

For more help figuring out your IRA beneficiary plan, consider meeting with a financial professional who can review your individual situation and offer personalized guidance.

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  1. Retirement plan and IRA required minimum distributions FAQs.
  2. Retirement Topics — Beneficiary.
  3. Look out for the kiddie tax when leaving an IRA to a minor.
  4. Spotlight on resources — 2022 edition.
  5. Inheriting an inherited IRA.

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