An Inherited IRA (Individual Retirement Account) is an account that is opened when an individual inherits an IRA from someone who has passed away. IRAs of course are retirement savings accounts that offer tax advantages, and when the original account holder dies, the account can be passed on to designated beneficiaries.

There are different rules and options for beneficiaries of Inherited IRAs depending on their relationship to the deceased account holder and the age of the original account holder at the time of their death. The rules can be complex, so it's important for beneficiaries to understand the specific requirements and options available to them.

When you indicate that your IRA is inherited, MaxiFi will give you a set of options that will correctly represent that IRA for most situations. 

Some key points about Inherited IRAs include:

Spousal Inherited IRA: If the beneficiary is the spouse of the deceased, they have the option to treat the Inherited IRA as their own by rolling it over into their existing IRA or creating a new one. This allows them to delay required minimum distributions (RMDs) until they reach the age of 73. Indeed, a spousal inherited IRA functions just as if it were your own IRA.

Non-Spousal Inherited IRA: Non-spousal beneficiaries (such as children or other individuals) generally have to take RMDs from the Inherited IRA, and the distribution schedule is determined by various factors, including whether the original account holder had started taking RMDs before their death and the date of the death. 

  • Original account holder dies on or after January 1, 2020. Non-spouse beneficiaries who inherit an IRA in such cases are subject to the 10-year rule. Under this rule, the beneficiary must withdraw the entire balance of the inherited IRA by the end of the tenth calendar year following the year of the original account holder's death keeping in mind that RMD will start in the first year of this ten-year period. 
  • Original account holder dies before January 1, 2020: In this case, beneficiaries have the option to stretch out the distributions from the Inherited IRA over their own life expectancy.