What Is an IRA
An IRA, or Individual Retirement Account, is a tax-advantaged savings account that holds retirement funds. When the account owner dies, the IRA passes to named beneficiaries through a beneficiary designation, not through a will. This makes IRAs a critical piece of estate planning that directly affects what you inherit and how you'll manage those funds after your loved one's death.
If you're handling a deceased person's financial affairs, understanding IRAs matters because the rules for inherited IRAs are strict and time-sensitive. The IRS requires specific actions within defined periods, and missing deadlines can result in significant tax penalties and lost tax advantages for the beneficiary.
How Inherited IRAs Work After Death
When you inherit an IRA, you cannot simply leave the money untouched. Federal rules require beneficiaries to take distributions (withdrawals) according to specific timelines. The rules changed under the SECURE Act in 2019, and they're complex depending on your relationship to the deceased.
- Surviving spouses have the most flexibility. You can roll the IRA into your own retirement account, treat it as your own, or keep it as an inherited IRA with different withdrawal rules.
- Non-spouse beneficiaries must empty most inherited IRAs within 10 years of the owner's death (with some exceptions for minor children or disabled beneficiaries). You cannot stretch distributions across your entire lifetime as previous rules allowed.
- Required Minimum Distributions (RMDs) may be due in years 1-9, depending on whether the account owner had already started taking RMDs before death. Any distributions you take are taxable as ordinary income.
IRAs and Your Estate Tasks
When settling someone's estate, locating IRA accounts is essential. Unlike bank accounts, IRAs don't automatically go through probate if a beneficiary is named, but you still need to notify the financial institution and provide a death certificate. The account custodian (usually a bank, brokerage, or investment firm) will guide you through their specific process, which typically takes 2-6 weeks.
If no beneficiary was named on the IRA, the account becomes part of the probate estate and may be distributed according to state law or the will, often resulting in faster taxation and loss of tax benefits. This is why reviewing beneficiary designations immediately after someone's death is one of your first practical steps.
Grief and Financial Complexity
Dealing with inherited IRAs while grieving is genuinely difficult. The rules are technical, the deadlines are firm, and the tax consequences are real. Many people in your situation find it helpful to work with a tax professional or financial advisor, especially if the inherited IRA is substantial or if you're managing multiple accounts. Some people also find that processing the practical, concrete steps of estate management provides a structure during overwhelming grief. Others need to step away and come back to it. Both are normal.
Support groups for people managing deceased loved ones' affairs, or bereavement counseling, can help you process both the emotional weight and the decision fatigue that comes with these tasks.
Common Questions
- What happens if I miss the 10-year deadline for an inherited IRA? The IRS can impose a 25% penalty on distributions that should have been taken but weren't (or a 10% penalty if corrected within two years). Consulting a tax professional immediately is essential if you're unsure about your obligations.
- Can I delay inheriting an IRA until I'm emotionally ready to handle it? The legal paperwork needs attention quickly, but you can work with a financial institution or advisor to manage the account on your behalf while you focus on grieving. You don't have to make investment decisions or large moves right away.
- Should I withdraw all the money at once or take it slowly? This depends on your financial situation, tax bracket, and the account size. A tax professional can calculate which strategy minimizes your tax burden, since all distributions are taxable income in the year taken.