What Is a Double Inherited IRA and How Does It Work?
Understand how a double inherited IRA is created, its tax implications, required withdrawals, and key administrative considerations for beneficiaries.
An inherited IRA allows beneficiaries to maintain the tax advantages of a retirement account after the original owner’s death. When the first beneficiary dies before depleting the account, a second inheritor takes over, creating what’s known as a double inherited IRA. This situation comes with unique rules and tax implications that differ from a standard inheritance.
How a Double Inherited IRA Arises
A double inherited IRA occurs when a beneficiary who inherited an IRA dies before fully distributing the account. The next in line, often a successor beneficiary named by the original inheritor, then assumes control. The IRS applies different rules to successor beneficiaries than to primary ones, affecting distribution timelines and tax treatment.
The account’s handling depends on how the first beneficiary structured their inheritance. If they stretched distributions over their life expectancy, the second inheritor must continue that schedule. If the first beneficiary was subject to the 10-year rule—requiring the account to be emptied within a decade—the successor must follow that same deadline, with no option to restart the timeline.
Estate planning decisions also impact these transfers. If the first beneficiary did not name a successor, the IRA may default to their estate, accelerating taxation. If the original account owner designated a trust as the beneficiary, the trust’s terms dictate access to the funds, potentially limiting flexibility.
Tax Ramifications
The tax treatment of a double inherited IRA depends on the relationship between the successor beneficiary and the original account owner. Under the SECURE Act of 2019, most non-spouse beneficiaries must fully distribute the account within 10 years. Successor beneficiaries inherit the same timeline as the first inheritor, and withdrawals are taxed as ordinary income. Large distributions in a single year can push the recipient into a higher tax bracket.
Spousal beneficiaries have more options. If a surviving spouse rolled the IRA into their own name, the account follows standard IRA distribution rules upon their death rather than the 10-year rule, allowing for more controlled withdrawals. If the spouse remained a beneficiary instead, the successor beneficiary is bound by the same rules that applied to the spouse.
Trusts as IRA beneficiaries add complexity. If a trust is named instead of an individual, tax treatment depends on whether it qualifies as a “see-through” or “conduit” trust. A conduit trust requires all IRA distributions to pass directly to beneficiaries, making them immediately taxable. An accumulation trust can retain distributions, but the trust itself faces higher tax rates, reaching the maximum 37% federal bracket at just $15,200 of income in 2024. Poorly structured trusts can lead to unnecessary tax burdens.
Required Withdrawals
Successor beneficiaries must follow specific distribution rules. If the original account owner had already begun taking required minimum distributions (RMDs), the successor must continue these annual withdrawals. Failure to withdraw the required amount results in a penalty—25% of the shortfall, reduced to 10% if corrected within two years.
For accounts subject to the 10-year rule, IRS guidance issued in 2022 clarified that if the original owner had started RMDs, the successor beneficiary must take annual withdrawals in years one through nine, with the balance fully distributed by year ten. This prevents tax-deferred growth from accumulating without periodic taxation.
If the original owner had not yet reached their required beginning date—April 1 of the year after turning 73 in 2024—the successor beneficiary follows the 10-year rule without annual RMDs. If RMDs had already begun, the successor must use the life expectancy factor of the first beneficiary, reducing it by one each year.
Paperwork Considerations
Managing a double inherited IRA requires accurate documentation. When a successor beneficiary takes over, custodians typically require a death certificate for the previous inheritor, along with formal identification and beneficiary verification forms. Delays in submitting these documents can restrict access to funds or misclassify the account, triggering unintended tax consequences.
Proper titling of the inherited IRA is essential. The IRS requires that the account retain the original owner’s name, along with language indicating it is inherited and specifying the successor beneficiary. Retitling it solely in the new beneficiary’s name could be interpreted as a full distribution, triggering immediate taxation. Most custodians provide standardized titling formats, but verifying compliance before making changes can prevent costly errors.
Estate Document Coordination
Ensuring that IRA beneficiary designations align with estate planning documents helps avoid complications. IRA beneficiary designations override wills, so any discrepancies must be addressed before the original account holder’s death to prevent unintended tax burdens or delays.
If a trust is involved, its structure determines how the IRA funds are distributed. A well-drafted trust can provide creditor protection and controlled distributions, but overly restrictive language may limit beneficiaries’ access to funds in a tax-efficient manner. If a trust does not qualify as a see-through trust under IRS rules, the IRA may be subject to a five-year distribution rule, accelerating tax liabilities. Reviewing trust provisions with an estate attorney ensures that the successor beneficiary can manage the inherited IRA in a way that balances tax efficiency with the original owner’s estate planning goals.