How can a nonspouse beneficiary move an inherited IRA?
Key takeaway
A nonspouse beneficiary can move an inherited traditional IRA by direct trustee to trustee transfer to another inherited IRA established and maintained in the deceased owner’s name for that beneficiary.
Keep the transfer between trustees
When funds move directly between traditional IRA trustees without a distribution to you, and the receiving inherited IRA retains the required title, the transfer is tax free. It is not subject to the waiting period between rollovers.
The current trustee may issue a check payable to the new trustee and give it to you for delivery. Holding that check does not itself make the payment a distribution to you.
A nonspouse beneficiary cannot make contributions to an inherited traditional IRA.
Keep required distributions separate
A direct IRA transfer does not count toward a required minimum distribution owed from the transferring IRA. That requirement must still be satisfied.
If the owner died on or after their required beginning date, any unpaid portion of the owner’s required minimum distribution for the year of death must be paid to the beneficiaries during that year.
Distinguish a transfer from taxable withdrawals
Inherited traditional IRA assets generally remain untaxed until distributed. Distributions are ordinary income except to the extent applicable basis makes them nontaxable.
If both your inherited traditional IRA and your own traditional IRA have basis, and you receive distributions from both, you must complete separate Forms 8606 to determine the taxable and nontaxable portions.
Two related terms
Designated beneficiary
A designated beneficiary is an individual named by the owner or designated under the plan. Receiving an account under a will does not make someone a designated beneficiary without a designation under the plan.
Inherited IRA basis
Inherited traditional IRA basis is the amount attributable to the deceased owner’s nondeductible contributions, which remains with the inherited IRA. A nonspouse beneficiary cannot combine it with basis in their own traditional IRAs or traditional IRAs inherited from other deceased owners.
A perspective on inheriting wealth
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Common questions
Can a nonspouse beneficiary roll an inherited IRA into their own IRA?
No. A nonspouse beneficiary cannot roll any amounts into or out of an inherited traditional IRA or treat it as their own. The permitted alternative is a direct trustee to trustee transfer to an IRA kept in the deceased owner’s name for that beneficiary.
Can I convert an inherited traditional IRA to a Roth IRA?
No. A nonspouse beneficiary cannot convert an inherited traditional IRA to a Roth IRA, including through a direct trustee to trustee transfer.
A separate rule permits a nonspouse designated beneficiary of a deceased employee to move an eligible employer plan distribution directly into an inherited Roth IRA. Required minimum distributions are excluded from eligible rollover distributions.
Does a beneficiary withdrawal trigger the additional early distribution tax?
No. A distribution paid to you as beneficiary on or after the owner’s death qualifies for the death exception to the 10% additional early distribution tax. Ordinary income tax treatment remains separate.
Sources
- IRS Publication 590-B: Distributions from Individual Retirement Arrangements. Inherited traditional IRA transfers, account titling, contributions, distributions and basis.
- IRS Publication 590-A: Contributions to Individual Retirement Arrangements. Direct transfers, checks payable to the receiving trustee, rollover restrictions and inherited Roth IRA transfers from employer plans.
- Treasury Regulation section 1.408-8. IRA transfers and required minimum distributions.
- Treasury Regulation section 1.401(a)(9)-5. Required distributions for the year of the owner’s death.
- Treasury Regulation section 1.401(a)(9)-4. Designated beneficiaries.
- Internal Revenue Code section 408(d)(3)(C). Inherited IRA rollover restrictions.
- Treasury Regulation section 1.408A-4. Roth conversion treatment.
- Internal Revenue Code section 402(c)(11). Direct employer plan transfers for nonspouse designated beneficiaries.
- Internal Revenue Code section 72(t). Death exception to the additional early distribution tax.