Navigating Inherited IRAs: A Guide for Siblings

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When a parent passes away, inheriting their IRA can come with a unique set of rules and considerations. This article provides guidance for siblings who have recently inherited an IRA from their father, covering topics like setting up the inherited account, the 10-year withdrawal rule, exceptions to the rule, and strategies to minimize taxes.

Why it matters

Inheriting an IRA is a common occurrence, but the rules around managing these accounts can be complex. Understanding the proper steps and tax implications is crucial to making the most of the inherited funds and avoiding costly mistakes.

The details

After their father's passing, the siblings must transfer his IRA into newly established inherited IRAs titled in his name for the benefit of each beneficiary. They cannot roll the IRA into their own accounts. Under the SECURE Act, non-spouse beneficiaries generally must withdraw all the money from an inherited IRA by the end of the 10th year following the original owner's death. If the father had already begun required minimum distributions (RMDs), the siblings must continue taking annual RMDs while also emptying the account within 10 years. Exceptions to the 10-year rule include a surviving spouse, a minor child, a disabled or chronically ill beneficiary, or someone within 10 years of the original owner's age. To minimize taxes, the siblings should consider spreading distributions over the 10-year period rather than taking large lump-sum withdrawals.

• The father passed away late last year.

What they’re saying

What’s next

To help navigate the decisions around managing the inherited IRA, the siblings should consider working with a financial advisor. If they don't have one, they can find a fee-only, fiduciary financial planner through the National Association of Personal Financial Advisors.