If you inherited an IRA from someone who died in 2019 or earlier, you’re probably confused about the rules. You’re not alone. The rules changed in 2020, but if your loved one died before that, you follow the old rules—which are completely different.
Here’s the quick guide to your options.
One Key Date You Need to Know
The “Required Beginning Date” (or RBD) is critical. For anyone who died in 2019 or earlier, their RBD was April 1st of the year after they turned 70½. Whether they died before or after this date changes your options as a beneficiary.
If You’re a Surviving Spouse
You have the most choices.
When your spouse died before their RBD:
- Spousal Rollover: Treat the IRA as your own. This is usually the simplest option.
- Stretch IRA: Take required withdrawals each year based on your life expectancy. Good if you’re under 59½ and need penalty-free access to the money.
- Five-Year Rule: No annual withdrawals required, but you must empty the account within five years.
When your spouse died on or after their RBD: First, make sure they took their required withdrawal for the year they died. If not, you must take it by December 31st of that year. Then you can either do a spousal rollover or set up a Stretch IRA.
If You’re Not a Spouse (Adult Child, Sibling, etc.)
Your options are simpler but more limited.
If the owner died before their RBD: Choose between a Stretch IRA (taking withdrawals over your lifetime) or the Five-Year Rule.
Example: Your mom died in 2019 at age 68, and you’re 45. With a Stretch IRA, you can take small required withdrawals each year for decades, keeping most of the money growing tax-deferred.
If the owner died on or after their RBD: Make sure their required withdrawal was taken for the year of death. Then set up a Stretch IRA and take annual withdrawals based on your life expectancy.
Critical Deadline for Multiple Beneficiaries
If you’re splitting an inherited IRA with siblings, you must create separate accounts by December 31st of the year after the owner’s death. Miss this deadline, and everyone has to use the oldest person’s life expectancy—meaning bigger required withdrawals and higher taxes.
Why Getting This Right Matters
Taking the wrong amount or missing a deadline can cost you penalties of up to 25% of what you should have withdrawn. Plus, you’ll still owe income taxes on the money. These mistakes can cost thousands of dollars.
Get Expert Help
The best way to avoid costly mistakes is to work with someone who specializes in IRA distribution rules. Look for a financial advisor who is both a CERTIFIED FINANCIAL PLANNER® professional and a member of Ed Slott’s Master Elite Advisor Group. I hold both credentials and can help you create a withdrawal strategy that fits your financial goals.
Schedule an Introductory Meeting to discuss your inherited IRA. No obligation—just clear answers to your questions.
Julia Peloso-Barnes, CFP® , is CEO/Sr. Wealth Adviser and Founder of Prism Planning and Solutions Group, a dba of Insight Advisors, a Registered Investment Advisor. .Julia is also a member of the Ed Slott Master Elite Advisor Group and has been helping clients seek empowerment through collaborative problem-solving for more than 30 years. Learn more here.
Neither Prism Planning and Solutions Group nor Insight Advisors provides tax or legal advice, and nothing in this communication should be treated as such. This communication should not be interpreted as a recommendation for a specific investment, legal or tax-planning strategy. We provide this material for informational purposes only. We have made every attempt to verify that the information contained in this communication is accurate as of the date published but make no warranties. Before making any decisions related to your own tax, legal and/or investment situation you should consult the appropriate professionals.
Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®, and CFP® (with plaque design) in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
