Inherited IRA From a Non-Spouse

Inherited IRA Rules for Non-Spouse Beneficiaries

Inherited IRA from Mom or Dad. Photo: Getty Images

As the U.S. population ages, it is common to inherit an IRA from a mom, dad, aunt, uncle, or even a sibling or friend. This often happens when you are in or near retirement. You have a few choices on how you treat this IRA (unless you inherited an IRA from your spouse, then different options apply).

Many people think they can roll an inherited IRA into their own IRA. However, if you inherited an IRA from someone who is not your spouse, you can't roll the account into your own IRA or treat it as your own.

Key Takeaways

  • IRA beneficiaries are determined by the account's designation, which supersedes the terms of a will or trust.
  • There’s no 10% early-withdrawal tax penalty if you want to cash in an inherited IRA, but you only have 10 years to do so.
  • On Dec. 20, 2019, the SECURE Act passed, requiring that non-spouse beneficiaries of IRAs must cash in IRA assets by December 31 of the 10th year after the original owner’s death.
  • Some beneficiaries may still be exempt from the SECURE Act rule if their benefactor passed before January 1, 2020.

Cash in the IRA Within 10 Years

You always have the option of cashing in an inherited IRA. You will pay taxes on the amount of the distribution but no 10% IRA early-withdrawal penalty tax. If you choose this option, you must cash in the entire inherited IRA by December 31 of the 10th year following the original IRA owner’s death. Although no penalty tax applies, this may not be your best option. Cashing in a large IRA could mean that up to 37% of it would go right to federal taxes. State income taxes will apply, too.


The beneficiary must be an individual (not a trust or a company) and must have been named by the original owner. Other rules apply if the beneficiary is a trust or company.

Exceptions To the 10-Year Rule

Exceptions to the 10-year rule include payments made to an eligible designated beneficiary: a surviving spouse, a minor child of the account owner, a disabled or chronically ill beneficiary, and a beneficiary who is not more than 10 years younger than the original IRA owner or 401(k) participant. These beneficiaries can "stretch" payments over their life expectancy.

Stretch IRAs for Deaths Before 2020

As a beneficiary, you must take minimum distribution amounts from the inherited IRA each year, according to your life expectancy, using a specific set of rules. These distributions are called required minimum distributions (RMDs).


Use an RMD calculator to do this math for you.

Using Stretch IRAs

Prior to the 2019 SECURE Act, you were able to set up an inherited IRA, with you as the beneficiary, and take RMD withdrawals slowly. This option of taking withdrawals over your life expectancy was frequently referred to as a “stretch IRA.” The nice thing about this option was that you could always withdraw the money sooner if needed. The RMD rules simply dictated the minimum you must withdraw. Withdrawing more than the minimum was always allowed.

If you are the recipient of a stretch IRA, your first required minimum distribution must occur by December 31 of the year following the year of the original IRA owner’s death. You need the following information to calculate the required minimum distribution amount:

  • Your age as of December 31 of the year following the original IRA owner’s death
  • The account balance as of December 31 of the prior year

Use the information above in the steps outlined below:

  1. As a non-spouse beneficiary, start by looking up your life expectancy as shown in Table I of IRS Publication 590. Use your age as of item 1 in the list above.
  2. Divide the previous year-end account balance (item 2 in the list above) by this life expectancy. That equals the amount you are required to withdraw in the first year you must take a distribution.
  3. Each year thereafter, take your previous year’s life expectancy minus 1, and that becomes the new divisor to use.

Expert Tip: Tip

Using the stretch option used to be a way to reduce the amount of tax you have to pay on the withdrawals, because your total taxable income was lower.

If the original IRA owner died before Dec. 31, 2019, the stretch IRA option is available. If the original IRA owner died on or after Jan. 1, 2020, then the IRA falls under the SECURE Act's rules. That means non-spousal beneficiaries must withdraw all assets from an inherited IRA or 401(k) plan by December 31 of the 10th year following the IRA owner's death.

When Trusts or Other Entities Inherit the IRA

If you represent a trust or other entity that is not an individual person, a different set of rules will apply. You can cash in the IRA, and you will likely have to do so within five years (not 10). However, when the trust's beneficiaries are individuals, those individuals will be treated as designated IRA beneficiaries to determine RMDs.

If you aren't careful, you may pay more in taxes than you should. Cashing out triggers income taxes, and missing RMDs could trigger excise taxes as high as 50%. If the IRA is sizable, talk to a financial planner before doing anything. Remember, you will have years to take action. There is no need to rush the decision and create taxable events.

Set a Designated Beneficiary for Your IRA

IRA beneficiaries supersede a will or trust. Make sure your beneficiary designations are up to date on your IRAs. If appropriate, ask family members whether you are identified as a beneficiary on their accounts. Having that information can be helpful when they pass away.

Frequently Asked Questions (FAQs)

How long do I have to withdraw funds from an inherited IRA?

The SECURE Act of 2019 established a 10-year deadline for non-spousal beneficiaries to withdraw all funds from an inherited IRA. It eliminated the so-called "stretch" IRA that let you stretch out payments indefinitely (as long as RMDs are taken). Certain beneficiaries, such as spouses and children, can still use the "stretch" method.

Can I cash in an inherited IRA without penalty?

You can withdraw inherited IRA funds at will. You won't face a 10% early withdrawal penalty if you cash in an inherited IRA. However, withdrawals will trigger income taxes, and these taxes could be significant if it is a large account, and you take the money all at once.

Was this page helpful?
The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Internal Revenue Service. "Retirement Topics - Beneficiary."

  2. House Committee on Ways and Means. "The Setting Every Community Up for Retirement Enhancement Act of 2019 (The SECURE Act)," Page 5.

  3. Internal Revenue Service. "Relief for Reporting Required Minimum Distributions for IRAs for 2020," Page 3.

  4. Internal Revenue Service. "IRS Provides Tax Inflation Adjustments for Tax Year 2022."

  5. Internal Revenue Service. "Publication 590-B (2021), Distributions from Individual Retirement Arrangements (IRAs)."

  6. Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs."

  7. Congressional Research Service. "Inherited or 'Stretch' Individual Retirement Accounts (IRAs) and the SECURE Act."

  8. Vanguard. "Understanding the Basics of Estate Planning," Page 13.

Related Articles