Is an IRA Considered Part of an Estate?
An IRA is treated differently than other assets after death. Learn how it can pass outside a will while still impacting tax obligations for your estate and heirs.
A common question in estate planning is how an Individual Retirement Account (IRA) is handled after the owner’s death. An IRA is a personal, tax-advantaged account for retirement savings. Whether an IRA is treated like other assets, such as real estate or bank accounts, and becomes part of the deceased’s estate depends on several factors. While a house is typically governed by a will, an IRA operates under a separate set of rules.
The Role of Beneficiary Designations
The primary way an IRA is transferred upon death is the beneficiary designation form, a legally binding document filed with the financial institution holding the IRA. This form allows the account owner to name specific individuals or entities to receive the assets directly, and its instructions supersede any conflicting directions in a will or trust. For example, if a will leaves all assets to a spouse but the IRA form names a child, the child inherits the IRA.
When a valid, living beneficiary is named, the IRA is considered a “non-probate asset.” This means it passes directly to the designated individuals outside the court-supervised probate process. Probate is the legal procedure for validating a will, paying debts, and distributing an estate’s remaining assets. By bypassing this process, the transfer of an IRA is faster, more private, and less expensive than distributing assets through a will.
Account holders can name both primary and contingent beneficiaries. A primary beneficiary is the first in line to inherit the account. A contingent, or secondary, beneficiary inherits only if the primary beneficiary has passed away or legally disclaims the inheritance. Keeping these designations current after life events like marriage or divorce helps ensure the assets are transferred according to the owner’s most recent wishes.
When an IRA Becomes Part of the Probate Estate
While IRAs are designed to avoid probate, they can be pulled into the court-supervised estate administration process. The most common reason this occurs is when the account owner fails to name any beneficiary. If no beneficiary is listed, the financial institution’s default rules, as outlined in the custodial agreement, will determine what happens, and the default is often the deceased’s estate.
Another scenario that forces an IRA into probate is when the account owner explicitly names their “estate” as the beneficiary. When the IRA becomes part of the probate estate, it is no longer protected from the deceased’s creditors. This means any outstanding debts or legal claims against the estate can be paid using the IRA funds before any heirs receive their share.
The probate process can also cause long delays before assets are distributed. The distribution of the IRA is then dictated by the terms of the deceased’s will. If no will exists, the assets are distributed according to state intestacy laws, which predetermine a hierarchy of heirs.
Inclusion in the Taxable Estate
A distinction exists between the “probate estate” and the “taxable estate.” While a properly designated beneficiary allows an IRA to avoid probate, its value is almost always included in the deceased’s gross estate for federal estate tax purposes. The Internal Revenue Service (IRS) considers all property owned or controlled by the decedent at death when calculating the taxable estate.
This means that whether an IRA passes directly to a child or is paid to the estate, its full market value on the date of death is added to other assets to determine if federal estate tax is due. This applies to both traditional and Roth IRAs.
However, inclusion in the taxable estate does not mean taxes will be owed. For 2025, the federal estate tax exemption is $13.99 million for an individual, so most estates do not owe federal estate tax. The IRA’s value must still be reported on the federal estate tax return, Form 706, if the total gross estate exceeds the filing threshold.
Tax Consequences for Beneficiaries
The main financial consequence for those who inherit an IRA is income tax, not estate tax. The rules for how and when this income tax is paid depend on the beneficiary’s relationship to the original account owner. These rules were changed significantly by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019.
A surviving spouse has the most flexible options. A spouse can treat the inherited IRA as their own by rolling the funds into their own new or existing IRA. This allows the spouse to make their own contributions, name their own beneficiaries, and delay taking required minimum distributions (RMDs) until they reach the required age. RMDs begin at age 73 for individuals born between 1951 and 1959, and at age 75 for those born in 1960 or later. This option provides the greatest potential for continued tax-deferred growth. Alternatively, a spouse can keep the account as an inherited IRA, which may allow for penalty-free withdrawals before age 59½.
Most non-spouse beneficiaries, such as adult children, are subject to a different set of rules under the SECURE Act. These beneficiaries must withdraw the entire balance of the inherited IRA by the end of the 10th year following the year of the original owner’s death, which is known as the “10-year rule.” The distributions from a traditional IRA are considered taxable income to the beneficiary in the year they are taken. If the original IRA owner died on or after their RMDs were required to start, a beneficiary must take annual RMDs in years one through nine, with the remainder distributed by the end of the 10th year.
There are exceptions to this 10-year rule for certain “eligible designated beneficiaries.” This category includes minor children of the account owner, disabled or chronically ill individuals, and beneficiaries who are not more than 10 years younger than the decedent. These individuals may be able to “stretch” distributions over their own life expectancy, a benefit that was more widely available before the SECURE Act. For a minor child, this special treatment ends when they reach age 21. At that point, the 10-year rule is triggered, and the remaining assets must be withdrawn by the end of the 10th year after the child turns 21.