Inherited IRA Distributions and Taxes: Getting It Right

Rate this post
Inherited IRA Distributions and Taxes: Getting It Right

If you received an Individual Retirement Account (IRA) from a parent or other relative who listed you as a beneficiary of the account, regardless of what the will says or how the executor interprets the will, you do not need to give up your IRA account to the estate.

If the will directs that “cash on hand” be dispersed to family members, the IRA account is not included. Under no circumstances would you be obligated to provide the executor the IRA profits.

The beneficiary designation, presuming it specifically mentions you, takes precedence over any provision in the will. Even if the will stipulates that the estate should receive an IRA rollover or an IRA, the beneficiary designate takes priority.

Key Takeaways

  • Being named as the beneficiary of an inherited IRA exceeds any provision in the deceased’s will.
  • Assets passed via beneficiary designation are not considered probate assets and should not be distributed to family members who are not named as beneficiaries.
  • Because IRAs are tax-deferred investments, taxes are not paid until the recipient withdraws funds from the account.
  • Because IRA distributions are taxable income, they should not be included as “cash-in-hand” when writing a will.
  • In most cases, inherited IRAs should be disbursed within five years, unless the term is expressly extended so that payouts may be paid during the beneficiary’s lifetime.


It is critical to name a main beneficiary for an IRA or 401(k). If you wish to leave your IRA to your spouse or children, you must name them as beneficiaries. As your family circumstances change, you should also maintain your IRA and 401(k) beneficiary lists up to date.

  Tax Advisor Definition

A will that requests “cash on hand” to be dispersed among family members refers to the descendant’s probate assets. “Assets that transfer via beneficiary designate are not probate assets and are therefore not subject to the provisions of the will,” Wealthspire Advisors’ Managing Director Michael Delgass said. “The most popular example of this sort of asset is an IRA account.” These assets are subject to a contractual arrangement with the company that holds them (in this case, the custodian of the IRA) that compels that entity to pay them out to the beneficiary.”

The regulations for inherited IRA distributions differ depending on whether the IRA was inherited from a spouse or a non-spouse. An IRA inherited from your spouse may have the same distribution regulations as your own personal IRA, but an IRA inherited from someone other than your spouse may have different distribution rules and procedures.

Cash on Hand

IRAs and inherited IRAs are both tax-advantaged accounts. That is, tax is paid when the holder of an IRA account or the beneficiary—in the event of an inherited IRA account—takes distributions. IRA distributions are considered income and must be taxed accordingly. If the will mentions “cash on hand” to be dispersed among family members, IRA distributions are not cash on hand.

“Cash on hand refers to immediately available cash, and since IRA distributions are taxed, I personally would not consider it in cash on hand,” said Adam Harding, a Scottsdale, Arizona-based financial planner.

The principal beneficiary designation takes priority over any directives in the will in the event of inherited IRAs. It is not permissible for the executor of the estate to request that the IRA main beneficiary return the IRA to the estate. As the principal beneficiary, you have complete authority over your ancestor’s IRA.

  Preventing a Tax Hit When Selling Rental Property

You would have to pay taxes if you cashed out the inherited IRA and gave it to the estate. “If you cash in [the] IRA and give it to her estate, you’d have to pay taxes on top of losing your inheritance,” said Arie Korving, a financial counselor of Korving & Company in Suffolk, Virginia.

The Bottom Line

Maintain your inherited IRA and be mindful of distribution procedures and tax implications. Inherited IRAs must be dispersed within five years after receipt, although the time period may be extended to transfer inherited assets throughout the beneficiary’s life expectancy. In any instance, distributions from an inherited IRA are deemed income and subject to taxation.

You are looking for information, articles, knowledge about the topic Inherited IRA Distributions and Taxes: Getting It Right on internet, you do not find the information you need! Here are the best content compiled and compiled by the team, along with other related topics such as: Tax.

Similar Posts