When you inherit an Individual Retirement Account (IRA), you become subject to specific IRS distribution rules that differ significantly from those that applied to the original account owner. These rules determine when and how you must withdraw funds from the inherited account. This guide is designed to help you understand the basic framework of these requirements.

NOTE: This article is for educational purposes only and does not constitute tax or legal advice. The rules governing inherited IRAs are complex and vary based on individual circumstances. Always consult with a qualified tax advisor or estate planning professional before making distribution decisions.

Overview

When you inherit an IRA, you generally must begin taking distributions according to IRS regulations. These required minimum distributions (RMDs) have specific rules and timelines that depend on:

• Your relationship to the deceased account owner
• The date of the owner's death
• Whether the owner had begun taking their own RMDs
• Your designation as an eligible designated beneficiary (EDB)

Failure to take required distributions may result in substantial IRS penalties—currently 25% of the amount not withdrawn (reduced to 10% if corrected timely).

Quick Reference: Distribution Options by Beneficiary Type

Understanding the 10-Year Rule

• For deaths occurring January 1, 2020, or later, most non-spouse beneficiaries must withdraw the entire inherited IRA balance by December 31 of the year containing the 10th anniversary of the owner's death.
• If the owner died before their RBD, no annual RMDs are required during the 10-year period, but the account must still be fully depleted by the end of year 10.

Important 2025 Update: Starting in 2025, if the original owner died on or after their required beginning date (RBD) and after January 1, 2020, beneficiaries subject to the 10-year rule must also take annual RMDs during years 1 through 9, with the remaining balance due by the end of year 10.

Tax Considerations

• Traditional IRAs: Distributions are generally taxable as ordinary income in the year received. The 10% early withdrawal penalty does not apply to inherited IRA distributions regardless of beneficiary age.
• Roth IRAs: Distributions are generally tax-free if the original owner's Roth IRA was established at least five years before the distribution. However, inherited Roth IRAs are still subject to RMD requirements.

Deadlines

• September 30 of the year following death: Beneficiary designation is finalized
• December 31 of the year following death: Deadline for certain elections and establishing inherited IRA accounts
• December 31 of year 5 or 10: Final distribution deadline under 5-year or 10-year rules
• April 1 following the year you reach age 73: Your RBD if you treat inherited IRA as your own (spouses only)

Multiple Beneficiaries

If there are multiple beneficiaries on a single inherited IRA:

• The beneficiary with the shortest life expectancy generally determines the distribution period for all
• Separate inherited IRA accounts can be established by December 31 of the year following the owner's death
• Once properly separated, each beneficiary can use their own distribution schedule

How to Request a Distribution from Your Inherited IRA

Step 1: Contact Interactive Brokers to verify your beneficiary status and distribution options.

Step 2: Complete your IRA distribution request through Client Portal:

1. Log in to Client Portal
2. Click Transfer & Pay
3. Select Transfer Funds
4. Choose Make a Withdrawal
5. Enter your withdrawal amount
6. Select your distribution method (check, ACH transfer, wire)
7. Review and confirm your request

Additional Resources

For detailed information and current regulations, visit:

• IRS Publication 590-B: www.irs.gov/publications/p590b
• IRS Retirement Plans FAQs: www.irs.gov/retirement-plans
• Life Expectancy Tables: Found in Appendix B of Publication 590-B

When to Seek Professional Guidance

The rules for inherited IRAs are complex and continue to evolve. As Interactive Brokers does not provide tax advice, please consult with a qualified tax professional or estate planning attorney if:

• You have inherited through a trust
• There are multiple beneficiaries
• You are unsure of your beneficiary classification
• You have missed a required distribution deadline
• The original owner died in 2020-2024 (transition period for regulations)
• You need to coordinate inherited IRA distributions with your overall tax planning

Important Reminders

✓ RMDs cannot be rolled over. Any attempt to roll over an RMD is treated as an excess contribution subject to penalties.

✓ Each IRA is calculated separately, but total RMDs from multiple inherited IRAs from the same decedent can be taken from one account.

✓ Taking more than the RMD in one year does not provide credit for future years' requirements.

Key Terms to Know

• Required Beginning Date (RBD): April 1 of the year after the account owner turns 73 (or age 75 for those turning 74 after December 31, 2032).
• Eligible Designated Beneficiary (EDB): A beneficiary who qualifies for special treatment, including surviving spouses, minor children, disabled or chronically ill individuals, and individuals not more than 10 years younger than the deceased owner.
• Designated Beneficiary: Generally determined as of September 30 of the year following the owner's death.

IRS Circular 230 Notice: These statements are not intended to constitute tax advice which may be relied upon to avoid penalties under any federal, state, local, or other tax statutes or regulations, and do not resolve any tax issues in your favor.