Can You Transfer an Inherited IRA? Rules & Options

An inherited Individual Retirement Account (IRA) is a significant financial asset received after the original owner’s passing. Many beneficiaries wonder about “transferring” these funds, which involves specific rules. Understanding these intricacies helps beneficiaries manage their inheritance and associated tax implications. This article clarifies pathways and outlines steps for managing inherited IRAs.

Key Considerations for Inherited IRAs

The management of an inherited IRA depends significantly on the beneficiary’s relationship to the deceased account owner. Spousal beneficiaries generally possess the most flexibility, while non-spousal beneficiaries face different rules and limitations. This distinction dictates how funds can be moved and the timelines for distributions.

A surviving spouse has unique options for an inherited IRA. They can treat the inherited IRA as their own, rolling assets into an existing or new IRA in their name. This allows for continued tax deferral and the ability to name their own beneficiaries, with required minimum distributions (RMDs) based on their age. Alternatively, a spouse can remain the beneficiary of the inherited IRA, which can be advantageous if they are under age 59½ and need funds without an early withdrawal penalty.

Non-spousal beneficiaries, including adult children or other relatives, cannot treat an inherited IRA as their own. They must establish an inherited IRA, also known as a beneficiary IRA, in the deceased owner’s name for their benefit. The primary rule for most non-spousal beneficiaries is the 10-year rule, introduced by the SECURE Act of 2019. This rule requires the entire balance of the inherited IRA to be distributed by December 31 of the year containing the 10th anniversary of the original account owner’s death.

There are exceptions to the 10-year rule for “eligible designated beneficiaries” (EDBs). These include surviving spouses, minor children of the deceased, individuals not more than 10 years younger than the account owner, and individuals who are disabled or chronically ill. EDBs can stretch distributions over their own life expectancy, offering a longer period for tax-deferred growth. Minor children EDBs become subject to the 10-year rule upon reaching the age of majority, typically 21.

If the original IRA owner had already begun taking RMDs, non-spousal designated beneficiaries subject to the 10-year rule may be required to take RMDs in years one through nine, with full distribution by year 10. If the original owner died before their required beginning date for RMDs, the beneficiary does not have to take annual RMDs but must still liquidate the account by the 10-year deadline. Distributions from traditional inherited IRAs are taxed as ordinary income, while qualified distributions from inherited Roth IRAs are tax-free.

Types of Account Movements for Inherited IRAs

Understanding the specific mechanisms for moving inherited IRA funds is important, as not all “transfers” are treated equally for tax purposes. Distinguishing between a spousal rollover and a trustee-to-trustee transfer is key.

A “spousal rollover” is a unique option exclusively available to surviving spouses. This allows the spouse to move inherited IRA assets into their own existing or new IRA, or certain employer-sponsored retirement plans like a 401(k) or 403(b). The surviving spouse assumes ownership, and funds become subject to their own distribution rules and RMDs based on their age. This can delay taxation and allow funds to continue growing tax-deferred.

For all beneficiaries, including spouses and non-spouses, a “trustee-to-trustee transfer” (also known as a direct transfer) is the primary method for moving inherited IRA assets between financial institutions without a taxable distribution. Funds move directly between custodians, meaning the beneficiary never takes physical possession. This method maintains the tax-advantaged status of the inherited IRA and prevents it from being considered a taxable withdrawal. The new account must be established as an inherited IRA, titled in the name of the deceased owner for the benefit of the beneficiary.

An “indirect rollover,” where the beneficiary receives a check and has 60 days to redeposit funds, is generally not permitted for non-spousal inherited IRAs. If a non-spousal beneficiary receives a distribution check, it is a taxable distribution and cannot be rolled into an inherited IRA. For spouses, while an indirect rollover is technically possible, it carries risks, including the 60-day deadline and potential early withdrawal penalties if funds are not redeposited on time. The IRS limits indirect rollovers to once every 365 days.

Preparing for an Inherited IRA Transfer

Before moving inherited IRA funds, beneficiaries must gather information and make informed decisions. This preparatory phase ensures a smooth process and avoids tax pitfalls. Understanding the original IRA details and beneficiary status are primary steps.

The financial institution holding the deceased’s IRA will require certain documents to process an inherited IRA claim. These typically include a certified copy of the deceased account owner’s death certificate and beneficiary designation forms. If a trust was named as beneficiary, a certified copy of the trust document or a trust certification form may be required. Providing the deceased’s account statements can also help verify the account type and fair market value.

Beneficiaries should confirm the type of IRA inherited (Traditional, Roth, SEP, or SIMPLE IRA) and their exact relationship to the deceased. Tax treatment and distribution rules vary significantly based on the IRA type and beneficiary status (spouse, eligible designated beneficiary, or other). For instance, traditional IRA distributions are taxable, while Roth IRA distributions are tax-free if certain conditions are met.

Decisions must be made regarding the distribution method, which depends on the beneficiary’s category. A surviving spouse must decide whether to roll over assets into their own IRA or maintain them as an inherited IRA. Non-spousal beneficiaries, subject to the 10-year rule, should consider the tax implications of their withdrawal strategy. Consulting with a financial advisor or tax professional is recommended to understand these choices and create a distribution strategy.

Initiating the Inherited IRA Transfer Process

After gathering information and making decisions, formally initiate the transfer with financial institutions. This involves submitting specific forms and following established procedures to move funds.

To begin, contact both the financial institution holding the deceased’s IRA and the institution where the new inherited or spousal IRA will be established. Each institution will provide specific forms for the transfer, such as a “Beneficiary Claim Form,” “Inherited IRA Application,” or “Transfer/Rollover Form.” Complete these forms accurately, ensuring all requested fields are filled with the gathered information.

When completing forms, clearly indicate the transaction is a direct trustee-to-trustee transfer to avoid accidental distributions that could trigger immediate taxation. For non-spousal beneficiaries, the new account is generally titled “Deceased Owner’s Name FBO (For the Benefit Of) Beneficiary’s Name.” Spouses choosing to roll over assets typically title the new account in their own name.

Once forms are completed and signed, submit them to the receiving financial institution. This institution will then coordinate the transfer with the original custodian. Processing times vary, typically from a few days to several weeks. Beneficiaries should retain copies of all submitted documents and follow up if they do not receive confirmation within a reasonable timeframe.