Is an inherited IRA taxable?

For traditional IRAs, yes — distributions are taxed as ordinary income to the beneficiary. For Roth IRAs, qualified distributions are tax-free. Both types are subject to the 10-year distribution rule for most non-spouse beneficiaries.

What is the difference between an inherited IRA and a regular IRA?

An inherited IRA has different rules: no additional contributions allowed, different RMD schedules, the 10-year distribution rule applies to most non-spouse beneficiaries, and early withdrawal penalties don't apply regardless of age.

What Happens to Your IRA When You Die?

Q: What happens to your IRA when you die?

Your IRA passes to your named beneficiary. Spouses can roll it into their own IRA and treat it as their own. Non-spouse beneficiaries must empty the account within 10 years under the SECURE Act. If no beneficiary is named, the IRA goes to your estate and becomes subject to probate.

Your IRA goes to your named beneficiary — and the rules depend heavily on who inherits it. Spouses get the most options (roll to own IRA), while most non-spouse beneficiaries must empty the account within 10 years.

Beneficiary Options by Relationship

Beneficiary	Traditional IRA Options	Roth IRA Options
Spouse	Roll to own IRA, treat as own, inherited IRA, lump sum	Roll to own Roth IRA, inherited Roth IRA, lump sum
Non-spouse individual	10-year rule (empty by year 10) or lump sum	10-year rule or lump sum (tax-free)
Minor child	Life expectancy until majority, then 10-year clock	Same
Disabled/chronically ill	Life expectancy distributions	Same (tax-free)
Person < 10 years younger	Life expectancy distributions	Same (tax-free)
Estate/charity	5-year rule (if died before RMD age) or life expectancy	Same
Trust	Depends on trust type (see-through vs. non-see-through)	Same

Spouse: Best Options

Strategy	Tax Impact	Best When
Roll to own IRA	Defer taxes until your own RMDs	Spouse doesn’t need the money now
Treat as own (same as rollover)	Same as rollover	Under 59½ and wants to delay access
Inherited IRA	Take distributions without early withdrawal penalty	Under 59½ and needs access now
Lump sum	Full amount taxed at once	Small balance

Spousal rollover is almost always the best choice — it maximizes tax deferral and gives full control.

Non-Spouse: 10-Year Rule

Year	Requirement
Years 1-9	No required annual withdrawals (but withdrawals are allowed)
Year 10	Entire remaining balance must be withdrawn by Dec 31

Note: The IRS has indicated that if the original owner was already taking RMDs, annual distributions may be required during the 10-year period. Consult a tax advisor.

Tax Comparison: Traditional vs. Roth Inherited IRA

$400,000 inherited IRA, non-spouse, 24% bracket:

Year	Traditional IRA (taxable)	Roth IRA (tax-free)
Withdrawal per year (even over 10)	$40,000	$40,000
Tax per year	$9,600	$0
Total received over 10 years	$304,000	$400,000
Total taxes paid	$96,000	$0

Inherited IRA Rules

Rule	Detail
No additional contributions	Cannot add money to an inherited IRA
No early withdrawal penalty	10% penalty does NOT apply, regardless of age
Taxable (traditional)	Each distribution is taxed as ordinary income
Tax-free (Roth)	Tax-free if the original Roth was open at least 5 years
Must retitle the account	“Jane Smith as beneficiary of John Smith, deceased”
Cannot combine with your own IRA	Must keep separate

Common Mistakes

Mistake	Consequence
Not naming a beneficiary	IRA goes to estate — probate, delays, potentially higher taxes
Forgetting to update after divorce	Ex-spouse inherits
Non-spouse doing a rollover to own IRA	Treated as a taxable distribution — can’t be undone
Waiting until year 10 for all withdrawals	Massive tax bill (pushes into highest bracket)
Missing the 10-year deadline	25% excise tax on the remaining balance

The Bottom Line

Name a beneficiary and a contingent beneficiary on every IRA you own — it overrides your will. Spouses should almost always roll to their own IRA. Non-spouse beneficiaries should spread withdrawals over 10 years to minimize taxes. For Roth IRAs, the 10-year rule still applies, but the distributions are tax-free.