So, You’ve Inherited an IRA—Now What?

You’ve prepared diligently for retirement… and then something unexpected happens—you inherit a retirement account. Whether it’s a Traditional IRA, Roth IRA, or a trust-held asset, receiving this windfall comes with real opportunity and real complexity.

And since the SECURE Act of 2020, the rules around inherited IRAs have changed significantly. Don’t worry—we’re here to guide you through your options so you can make smart, generationally wise decisions.

If You’re a Spouse: You Have Options

Inheriting from a spouse comes with the most flexibility. Here are your top choices:

• Treat It as Your Own
  Roll the IRA into your own and manage it like you would any of your existing retirement assets. You’ll take required minimum distributions (RMDs) at age 73 (if born in 1960 or later).

• Open a Beneficiary Distribution Account (BDA)
  Want penalty-free access before age 59½? A BDA may be ideal. If your spouse had already started RMDs, you’ll need to take one in the year of their passing, then follow either your own or their life expectancy for future distributions.

• Roth IRA? Even Better.
  No RMDs. Tax-free growth. Tax-free withdrawals (as long as the account was open for 5+ years). You can either treat it as your own or take flexible distributions.

If You’re a Non-Spouse: The 10-Year Rule Applies

Non-spouse heirs—like adult children, grandchildren, siblings, or friends—must now empty the IRA within 10 years of the original owner’s death. Here’s how that breaks down:

• Eligible Designated Beneficiaries (EDBs): If you’re disabled, chronically ill, or less than 10 years younger than the deceased, you may take distributions over your lifetime.

• Minor Children: Distributions can follow life expectancy until age 21. After that, the 10-year rule kicks in.

• Everyone Else: No annual RMDs are required, but the account must be fully withdrawn by the end of year 10.

If You Inherit from an Estate or Trust

This is where it gets trickier:

• If the deceased was already taking RMDs, you continue on their schedule.

• If they weren’t yet taking RMDs, you have 5 years to fully withdraw the funds.

Making the Most of Your Inherited IRA

It’s tempting to defer taxes as long as possible. But what if that actually hurts your heirs?

Instead, ask:

• Can I use this income to improve my retirement lifestyle?

• Would paying taxes now benefit my heirs in the long run?

• Am I in a lower tax bracket today than my kids will be?

If the answer is yes, it may be smart to withdraw or convert some funds now. And if you don’t need the income right away, you can reinvest it elsewhere using the Four Buckets Retirement Income Strategy® to maintain balance across income, liquidity, growth, and legacy goals.

The Bottom Line

An inherited IRA is a blessing—but only if you understand how to use it wisely.

With the Four Buckets framework, you’ll avoid missed opportunities, reduce the tax burden on your heirs, and turn inherited wealth into a meaningful part of your financial legacy.

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