Frequently Asked Questions
What’s a required minimum distribution (RMD)?
A required minimum distribution, or RMD, is the minimum amount the IRS requires you to withdraw from a retirement account for a given year. For an inherited IRA, your withdrawal requirements depend on your relationship to the original owner, the account type, and when the owner died. Some beneficiaries must take annual RMDs and empty the account by a separate deadline.
What happens if I miss an inherited IRA RMD withdrawal?
Missing a required withdrawal can result in a penalty of 25% of the amount not withdrawn. If corrected within a 2-year correction window, the penalty reduces to 10%.
Example: You still owe standard income tax on any pre-tax funds you eventually withdraw from the inherited traditional IRA.
What should I do if I have inherited a 401(k) or other workplace plan?
Contact the employer’s plan administrator to confirm your beneficiary options, withdrawal deadlines, and any RMDs due. Your options depend on the plan’s rules and your relationship to the deceased participant.
You may be able to move eligible funds directly into an inherited IRA. For non-spouse beneficiaries, this must be a direct transfer from the plan to the inherited IRA, rather than a payment to you personally. RMD amounts cannot be rolled over. Confirm the requirements with both providers before moving the funds.
Do I need to pay taxes when I inherit an IRA?
You generally do not owe federal income tax simply because you inherit an IRA. Taxes usually depend on the account type and the withdrawals you take.
Traditional IRA: Withdrawals are generally taxable as ordinary income. If the original owner made nondeductible contributions, part of each withdrawal may be tax-free.
Roth IRA: Withdrawals are generally tax-free once the original owner’s five-year holding requirement has been met. Before then, withdrawn earnings may be taxable.
Withdrawals taken as a beneficiary from an inherited IRA generally are not subject to the 10% early withdrawal penalty, regardless of your age. Income taxes and missed RMD penalties may still apply.
