What is a Beneficiary IRA?

A beneficiary IRA is the account you open to hold an individual retirement account (IRA) you’ve inherited. It stays titled in the original owner’s name for your benefit, and it comes with its own withdrawal deadlines that depend on who you are and when the owner died.

“Beneficiary IRA” and inherited IRA describe the same account, and some custodians label it a BDA on statements. For timing withdrawals across the 10-year window, see the inherited IRA page.

Beneficiary IRA vs. Inherited IRA

There’s no difference in the rules. The Internal Revenue Code and IRS Publication 590-B talk about inherited IRAs and IRA beneficiaries; “beneficiary IRA” is a name custodians and advisors use for the same account. The label on your paperwork doesn’t change your deadlines or your taxes.

How to Open a Beneficiary IRA

Start with the custodian that holds the original account. It will have its own claim forms and documentation requirements, and it can open the beneficiary IRA directly.

The new account has to be titled as inherited, naming both the deceased owner and you as beneficiary. If you want the money at a different firm, ask for a trustee-to-trustee transfer into another inherited IRA. A non-spouse beneficiary can’t roll an inherited IRA into their own IRA, and a check made out to you is treated as a taxable distribution rather than something you can redeposit.

A surviving spouse has more choices, covered below. Everyone else is working inside the inherited account from day one, and no new contributions can go into it.

IRA Beneficiary Rules by Beneficiary Type

Your category is fixed at the owner’s death, and it decides how long you can take to withdraw the money.

Beneficiary IRA Distribution Rules: The 10-Year Rule

Since the SECURE Act, beneficiaries in the “any other individual” row get 10 years to empty the account instead of a lifetime stretch. Whether you also have to withdraw something every year in between depends on the original owner.

If the owner died before their required beginning date, the date their own required minimum distributions (RMDs) had to start, you can withdraw on any schedule as long as the account is empty by the end of year 10. If they died on or after that date, you must also take an annual RMD in each of years one through nine. Final regulations issued in July 2024 settled this, and after waiving penalties for 2021 through 2024, the IRS applies the annual requirement starting with 2025.

Missing a required distribution triggers an excise tax of 25% of the shortfall, reduced to 10% if you correct it within the correction window.

Say you inherit a $500,000 traditional IRA from a parent who had already started RMDs. You need to take an annual RMD each year and still empty the account by the end of year 10. Taking it all at once would add $500,000 of ordinary income to a single tax return; spreading it evenly, ignoring growth, adds about $50,000 a year instead, and you can shift more into years when your other income is lower. Add the account to a plan as an inherited IRA, with the original owner’s birth and death dates, and tax analytics show how each year’s distributions change what you owe.

IRA Beneficiary Rules for a Spouse

A surviving spouse who is the sole beneficiary can choose among three options:

1. Treat the IRA as your own by designating yourself as the owner
2. Roll it over into your own IRA
3. Stay a beneficiary, keeping it as an inherited account

Treating it as your own means RMDs follow your own required beginning date, which is age 73 if you were born between 1951 and 1959 and age 75 if you were born in 1960 or later. It also lets you contribute and name your own beneficiaries.

Staying a beneficiary keeps one advantage: distributions from an inherited IRA aren’t subject to the 10% early withdrawal penalty. A spouse under 59 1/2 who needs the money may want to stay a beneficiary for now and treat the account as their own later.

Roth vs. Traditional Beneficiary IRAs

Distributions from a traditional beneficiary IRA are taxed as ordinary income at your rate, except for any after-tax basis the owner had in the account.

A Roth beneficiary IRA is gentler. Distributions are tax-free once the Roth has met its five-year holding period, counted from the first tax year the owner contributed to any Roth IRA. Because a Roth owner never has lifetime RMDs, the owner is treated as having died before their required beginning date, so a non-eligible beneficiary has no annual RMDs in years one through nine. The account still has to be empty by the end of year 10, which makes leaving it to grow tax-free until late in the window an option a traditional beneficiary IRA doesn’t offer.

Frequently Asked Questions

Is a beneficiary IRA taxable? Traditional beneficiary IRA distributions are taxed as ordinary income at your rate. Roth distributions are tax-free once the account has met its five-year holding period. Neither is subject to the 10% early withdrawal penalty.

Can I convert a beneficiary IRA to a Roth IRA? Only a surviving spouse who has treated the IRA as their own can convert it. A non-spouse beneficiary has to take taxable distributions and invest the proceeds separately.

Can I contribute to a beneficiary IRA? No, unless you are a surviving spouse who has treated it as your own IRA. A non-spouse beneficiary can’t add money or roll other funds into it.

Do I have to take money out of a beneficiary IRA every year? Only if you’re an eligible designated beneficiary taking life-expectancy distributions, or the original owner died on or after their required beginning date. Otherwise, you only need to empty the account by the end of the tenth year after the owner’s death.