Inherited IRAs

I find many of my clients to be confused over the income tax rules when we leave an IRA account to a loved one upon our demise. Here, I’m going to clear up the confusion. 


Many of us are familiar with Individual Retirement Account (IRA) required minimum distribution (RMD) rules. Once we attain age 73 (technically it’s April 1st following the date we turn 73) we must begin taking distributions based upon IRS actuary tables. Most of us take distributions based upon the Uniform Life Table, unless the taxpayer is married to someone 10 years younger, and that spouse is the sole beneficiary of the IRA. Then there is another table that applies. 


Generally speaking, in order to calculate the annual RMD, on the appropriate table you find the divisor corresponding to this calendar year’s age, dividing the prior year’s December 31st balance by that divisor. So if I’m 75 years of age owning $500,000 of IRA assets as of December 31st of the prior calendar year, the divisor on the Uniform Life Table is 22.9 resulting in a RMD of $21,834.  


Traditional IRAs have RMDs, where Roth IRAs do not have RMDs for the account owner.  


What happens when we pass on and leave our IRA to our spouse? At that time our spouse will rollover the IRA account and now she becomes the plan participant. This action resets the RMD based upon her age according to the Uniform Life Table. Roth IRAs, in addition to tax-free withdrawals, do not have RMDs. If a spouse rolls over a Roth IRA, then she will not have an RMD just as you, as the original account owner, will not have an RMD. 


So what happens when a non-spouse beneficiary inherits an IRA account? Assume that you leave your IRA account to your two children, son and daughter. Your children are obviously not your spouse, so they do not have the ability to roll over your IRA. The IRA becomes an “Inherited IRA”. Assuming John Smith names his son, Peter and daughter, Cynthia, as 50% beneficiaries each, then his IRA account splits into two shares: “The John Smith Inherited IRA f/b/o (for the benefit of) Peter” and “The John Smith Inherited IRA f/b/o Cynthia”.  


Peter can take move his share to whatever custodian he prefers as can Cynthia. So If Peter wishes to move his Inherited IRA to Fidelity and Cynthia wants to move her Inherited IRA to Vanguard each can do so. If the IRA accounts are “traditional” IRAs, then both Peter and Cynthia will have RMDs based upon a “Single Life Table”. The RMDs begin in the year following their father’s death, no matter their age.  


Assume that Peter is 60 years old and his share has $250,000 and Cynthia is 58 years old and her share also has $250,000. Peter’s divisor under the Single Life Table is 25.2, resulting in a RMD of $9,921. Cynthia’s divisor is 27 resulting in a RMD of $9,259. Rather than moving down the RMD table, with an Inherited IRA both Peter and Cynthia subtract one from the divisor each year until the Inherited IRA account is exhausted. Consequently, in the next calendar year Peter’s divisor to compute his RMD would be 24.2 and Cynthia’s would be 26.  


The Single Life Table divisor is also used for Inherited Roth IRA accounts. Recall that the plan participant or a spouse who rolls over a Roth does not have RMDs. But Inherited Roth IRAs do have RMDs. Therefore, Roth IRA accounts will eventually be drained entirely. 


If either Peter or Cynthia die before the Inherited IRA is fully withdrawn, the next beneficiary would continue the RMDs under Peter’s or Cynthia’s table (the divisor does not reset) until the account is fully exhausted. 


Because distribution from traditional Inherited IRAs trigger income tax, the estate planning surrounding your IRA accounts becomes important. You should not just complete a beneficiary designation and leave it with that. Instead, you should discuss what you want your estate plan to accomplish for your loved ones with your estate planning attorney, paying particular attention to these valuable accounts. 


©2023 Craig R. Hersch. Learn more at 

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