After the death of a parent, you may be the beneficiary of whatever is left in their retirement account – whether it’s a 401(k), IRA, or something similar.

Here’s how Vanguard explains the Inherited IRA:

An inherited IRA, also known as a beneficiary IRA, is an individual retirement account that is opened when someone inherits retirement fund assets after the death of the original owner.

Virtually anyone can inherit an IRA. Typically, beneficiaries are spouses, children, other family members, friends, or entities like trusts or charities. The rules and options available to the beneficiary can vary significantly depending on whether the beneficiary is the original account owner’s spouse or a nonspouse beneficiary.

Inherited IRAs have very specific legal and tax rules, so it’s important to be aware of your responsibilities as the person who has inherited this account. While you should always consult with a trusted financial and tax advisor, here’s a bit about what you should know about the Inherited IRA.

You Must Open an Inherited IRA Account

You cannot roll the inherited money into your own existing IRA (only a spouse can generally do this).

Contact the current financial institution (custodian) to set up a new account, which must be specifically titled as an “Inherited IRA” or “Beneficiary IRA.” The title must include both the deceased parent’s name and your name as the beneficiary (e.g., “[Parent’s Name], deceased, IRA for the benefit of [Your Name]”).

This titling is critical. It signals to the IRS that the assets are subject to the special inherited IRA rules, not your personal IRA rules, which is what saves you from the 10% early withdrawal penalty if you are under age 59 1/2.

You Must Withdraw the Balance Within 10 Years

The old “Stretch IRA” rule, which allowed non-spouse beneficiaries to spread distributions over their lifetime, is mostly gone for accounts inherited after 2019 (due to the SECURE Act).

You must distribute (withdraw) the entire balance of the Inherited IRA by December 31st of the year containing the 10th anniversary of your parent’s death. For example, if your parent died in 2024, the account must be empty by December 31, 2034.

Annual Required Minimum Distributions (RMDs) May Be Required

This is the most complex part, and the rules were clarified recently by the IRS for accounts inherited after 2019.

Situation	Annual RMD Requirement (Years 1-9)
If your parent DIED before they were required to start taking RMDs (their Required Beginning Date, generally April 1 following the year they turned 73)	NO annual RMDs are required. You can withdraw any amount you want, any year, as long as the account is empty by year 10.
If your parent DIED on or after they were required to start taking RMDs	YES, you are required to take an RMD in years 1 through 9, and then empty the account by year 10.

If your parent was already taking RMDs, you must continue taking them. If they hadn’t taken the RMD for the year of their death, you, as the beneficiary, must take it before December 31st of that year.

Distributions are Taxable Income

Whether the IRA was a Traditional or Roth IRA is a key factor in your tax liability.

• Inherited Traditional IRA: Distributions are typically taxed as ordinary income in the year you take them. This means any withdrawal is added to your income and could push you into a higher tax bracket.
• Inherited Roth IRA: Distributions are generally tax-free, provided the Roth IRA was established at least five years before your parent’s death. You still must follow the 10-year distribution rule.

3 Practical Steps to Take Immediately

1. Gather Information: Determine the exact date of death and whether your parent was already taking RMDs (or was required to start them). This is necessary to determine your RMD schedule.
2. Coordinate the Transfer: Do a direct trustee-to-trustee transfer from the old custodian to your new Inherited IRA. Never take a cash distribution and try to deposit it yourself (an indirect rollover), as this will be considered a taxable event and negate the benefits.
3. Consult with a Professional: Given the complexity of the RMD rules and the significant tax implications of your withdrawals, you should speak with a tax advisor (CPA) and/or a financial advisor to create a 10-year distribution strategy that minimizes the tax hit on your personal income.