What Is an Inherited IRA?

An inherited IRA is a retirement account that a beneficiary receives after the original account holder passes away. These accounts allow the beneficiary to continue benefiting from tax-deferred or tax-free growth, depending on whether the original account was a traditional or Roth IRA. However, inherited IRAs are subject to specific withdrawal rules that vary depending on the type of beneficiary.

Recent changes under the SECURE Act of 2019 and its follow-up SECURE 2.0 Act of 2022 significantly changed the rules for inherited IRAs. Most non-spouse beneficiaries must now withdraw the entire balance within 10 years of the original owner’s death, and required minimum distributions (RMDs) may apply during that period in some cases.

At Elder Law Guidance, we help families make informed decisions about inherited IRAs. From understanding withdrawal timelines to developing tax-efficient strategies, we’re here to guide you through the process. If you’ve received an inherited IRA, contact us to protect your inheritance and avoid costly mistakes.

How Inherited IRAs Work

Managing an inherited IRA is more than handling money—it’s about preserving a loved one’s legacy while meeting legal and financial responsibilities. These accounts may originate from either traditional IRAs, which are tax-deferred, or Roth IRAs, which may offer tax-free withdrawals if conditions are met. Once inherited, the account becomes a beneficiary IRA.

Understanding key concepts like tax-deferred growth and required minimum distributions (RMDs) is essential. While Roth IRAs are generally not subject to RMDs during the original owner’s lifetime, inherited Roth IRAs are subject to RMD rules for non-spouse beneficiaries under the 10-year rule.

Types of Beneficiaries:

• Spouse beneficiaries have the most flexibility. They can roll the inherited IRA into their own IRA or treat it as an inherited IRA.
• Non-spouse beneficiaries must generally withdraw all assets within 10 years of the account holder’s death if the person died in 2020 or later.
• Eligible Designated Beneficiaries (EDBs)—such as minor children (of the account owner), disabled individuals, chronically ill individuals, or beneficiaries not more than 10 years younger than the decedent—may take distributions over their life expectancy instead of the 10-year rule.

For some beneficiaries (especially those subject to the 10-year rule), RMDs may still be required in years 1–9 if the decedent had already begun taking RMDs before passing away.

These distinctions can have a significant impact on tax liability and estate planning. That’s why we work closely with clients to create personalized strategies that preserve inherited IRAs and comply with current laws. With proper guidance, these accounts can continue supporting your family for years.

Why Protective Measures Are Essential

An inherited IRA can be a meaningful gift, but without proper planning, it may come with unintended complications. Beneficiaries could face unexpected taxes and penalties or even lose part of the inheritance to creditors.

The SECURE Act has added new rules that make planning ahead even more critical. Without the right legal structures, inherited IRAs may be vulnerable and lose their long-term value.

Using tools like trusts and understanding withdrawal requirements can help protect these assets and ensure they’re used as intended. With a few proactive steps, you can shield your loved ones from financial setbacks and keep your legacy intact.

Key Differences Between Spousal and Non-Spousal Inherited IRAs

When someone inherits an IRA, the rules they must follow depend on their relationship to the original account holder. Spouses have more flexibility, while non-spouse beneficiaries face stricter guidelines.

Spousal Beneficiaries:

• Can roll the inherited IRA into their own IRA, allowing it to grow tax-deferred.
• Can delay required minimum distributions (RMDs) until they reach the age when RMDs begin (currently age 73).
• Have the option to treat the account as their own, offering more control and long-term planning opportunities.

Non-Spousal Beneficiaries:

• Cannot roll the account into their own IRA.
• Must withdraw the entire balance within 10 years, potentially creating a more significant tax burden.
• Have fewer options for deferring taxes or spreading out distributions.

Eligible Designated Beneficiaries (EDBs)

Certain beneficiaries qualify for more flexible withdrawal options under the SECURE Act. These Eligible Designated Beneficiaries include:

• Surviving spouses
• Minor children of the original account holder (only until they reach the age of majority)
• Individuals with disabilities
• Chronically ill individuals
• Beneficiaries not more than 10 years younger than the deceased

Unlike most other non-spouse beneficiaries, EDBs are generally allowed to take required minimum distributions based on their life expectancy rather than being forced to empty the account within 10 years. This can help reduce the annual tax burden and preserve the account’s long-term value.

Because these rules are detailed and vary by situation, seeking legal guidance is essential. With the right strategy—such as properly structured trusts and estate planning tools—you can ensure that inherited IRA assets are protected and passed on according to your wishes. Contact Elder Law Guidance for more information. 

Common Risks to Inherited IRA Assets

While inherited IRAs can provide long-term financial support, they also come with risks that can reduce their value if not appropriately handled.

Key risks include:

• Tax Surprises: Large withdrawals can push beneficiaries into higher tax brackets, leading to unexpected tax bills.
• Missed RMDs (Required Minimum Distributions): Failing to take required distributions on time can trigger IRS penalties and shrink the account.
• Life Changes: Divorce, remarriage, or blended families can complicate who receives or keeps inherited IRA funds.
• Creditor Access: In some cases, creditors or legal judgments may be able to access inherited IRA funds, especially if they aren’t properly protected.
• Unexpected Expenses: Medical bills or emergencies may lead to premature withdrawals, reducing the account and possibly incurring penalties (especially if the IRA wasn’t inherited correctly or used improperly).

Planning ahead, understanding the rules, and adjusting to life’s changes are essential to protecting the value of an inherited IRA.

Legal Strategies for Safeguarding Inherited IRAs

Smart legal planning can help preserve inherited IRA assets and prevent unnecessary loss due to taxes, legal claims, or poor estate planning.

Effective strategies include:

• Use of Trusts: Setting up an IRA-specific trust (like an IRA Inheritance Trust) can help control how assets are distributed and keep them safe from creditors or probate.
• Reviewing Beneficiary Designations: Make sure your IRA designations are accurate and up to date—especially after major life events like marriage, divorce, or the birth of a child.
• Regular Plan Reviews: Revisit your retirement and estate plans regularly to ensure they reflect your current wishes and comply with the latest laws.
• Tailored Legal Guidance: Work with experienced professionals who can help you understand the rules, make informed decisions, and avoid costly mistakes.

With the right legal and financial support, you can safeguard inherited IRAs and ensure they benefit future generations as intended.

Let Elder Law Guidance Fight for You

Managing an inherited IRA—and the broader estate planning that comes with it—can feel overwhelming. At Elder Law Guidance, we help you understand your options and protect what matters most.

Our team works with families to build customized estate plans that reflect your goals and avoid common pitfalls. We help you navigate distribution rules, minimize tax exposure, and structure your assets to benefit your loved ones over the long term.

Whether it’s establishing a qualified trust, updating beneficiary designations, or protecting your IRA from creditors, we’re here to guide you every step of the way. Our legal strategies are tailored to your unique situation and are grounded in a deep understanding of Kentucky’s laws and regulations.

Estate planning is more than paperwork—it’s about peace of mind. From retirement and inheritance planning to guidance on Medicaid and long-term care, we provide compassionate, knowledgeable support so you can make confident decisions for your family’s future.