Beneficiary IRA
A Beneficiary IRA (also called an Inherited IRA) is an IRA established to receive assets from a deceased person's IRA or employer plan, with distribution rules that differ significantly from those applying to the original account owner.
When the owner of an IRA, 401(k), or other retirement account dies, the named beneficiary cannot simply treat the account as their own (with one important exception: a surviving spouse can elect to treat an inherited IRA as their own). Instead, beneficiaries must establish a separately titled Beneficiary IRA — titled in the format 'John Smith IRA (deceased January 1, 2025) for the benefit of Jane Smith, Beneficiary' — and transfer the assets into it. No new contributions can be made to a Beneficiary IRA.
The distribution rules were dramatically transformed by the SECURE Act (2019) and further clarified by IRS proposed regulations in 2022. Under the old rules, most non-spouse beneficiaries could 'stretch' distributions over their own life expectancy, sometimes deferring the IRA's tax recognition for 30-40 years. Under the SECURE Act's 10-year rule, most non-spouse beneficiaries must withdraw the entire balance by December 31 of the 10th year after the year of the original owner's death. No minimum annual distribution is required in years 1-9, but the full balance must be liquidated by year 10.
There are important exceptions to the 10-year rule — known as 'eligible designated beneficiaries' (EDBs) who retain the stretch IRA option: (1) surviving spouses, (2) minor children of the deceased (until they reach majority, then the 10-year rule begins), (3) disabled or chronically ill individuals (as defined by the IRS), and (4) individuals not more than 10 years younger than the deceased.
For beneficiaries of owners who died after their RMD start date, IRS guidance has clarified that annual RMDs are still required in years 1-9 (using the beneficiary's life expectancy), with the remaining balance distributed by year 10. For Roth IRA beneficiaries, the 10-year rule applies but distributions are generally tax-free, making the timing of withdrawals flexible. Proper beneficiary designation — kept current and reviewed after major life events — is among the most impactful aspects of retirement account estate planning.