Navigating Your Options When Inheriting a Roth IRA or Traditional Retirement Account

Receiving an inheritance of an individual retirement account presents both opportunities and obligations. The path forward depends on whether you’re a spouse or non-spouse beneficiary, the account type, and the deceased’s age at the time of passing. Rather than rushing into decisions during an emotionally difficult period, understanding the government’s framework—and the tax implications that follow—will help you make informed choices.

Understanding What You’ve Inherited

When someone passes away and leaves you an individual retirement account, you become the account beneficiary. This applies whether the account is a traditional or Roth IRA. These accounts hold various investments including stocks, bonds, and mutual funds, with earnings growing tax-protected until distribution.

The distinction matters significantly: traditional IRAs contain pre-tax contributions (tax-deductible when made), while Roth IRAs hold after-tax money (tax-free growth and withdrawal). As an heir, you can establish what’s known as an “inherited IRA” in your name, transferring assets from the original account. However, the SECURE Act (2019) fundamentally altered the landscape for non-spouse beneficiaries, requiring account depletion within 10 years.

Your First Decision: Are You the Spouse?

Spouse Beneficiaries and Traditional Accounts

If you’re the surviving spouse of a traditional IRA holder, the IRS grants three distinct pathways:

The first approach involves becoming the account owner yourself through “retitling”—placing the account directly in your name. You gain full control to contribute or withdraw as needed, though withdrawals before age 59½ typically trigger a 10% penalty.

Your second option is transferring assets into an existing IRA you maintain, or rolling them into an employer retirement plan if available. This keeps everything tax-deferred while consolidating your accounts.

The third option treats you as a beneficiary rather than an owner. You could take everything as a lump sum, but more strategically, you can transfer assets into an inherited IRA, which requires minimum distributions once you reach 72 years old (recently increased from 70½ under SECURE 2.0).

Roth IRAs and Spouse Inheritance

Inheriting a Roth IRA offers distinct advantages. As a surviving spouse, you may withdraw any amount tax-free provided the account existed for at least five years—without the 10% penalty typically applied to early withdrawals. Unlike traditional accounts, Roth IRAs carry no required minimum distributions, allowing indefinite growth.

Many spouses transfer inherited Roth assets to their own Roth IRA, enabling long-term wealth accumulation for themselves and potentially future heirs.

Non-Spouse Beneficiaries: Children and Others

If you inherit an IRA as a child, distant relative, or unrelated person, your options narrow. You cannot retitle the account in your own name—that privilege belongs exclusively to spouses. Instead, you establish an inherited IRA to hold the transferred assets.

The Withdrawal Decision

You face a critical choice: withdraw everything immediately or spread distributions over time. Taking a lump sum from a traditional IRA means paying income taxes on the full amount. Roth distributions (after five-year account existence) escape taxation entirely, but you lose decades of compound growth.

The 10-year rule introduced by the SECURE Act requires non-spouse beneficiaries to empty accounts completely by the 10th anniversary of the owner’s death. This replaced the “Stretch IRA” strategy, which previously allowed beneficiaries—say, a 35-year-old heir—to spread distributions across their entire lifetime using IRS life expectancy tables. Some exceptions exist for minor children, disabled individuals, and the chronically ill.

Partial Withdrawals and Growth

If immediate needs don’t demand full liquidation, you can withdraw selectively while keeping remaining funds in the inherited IRA. This approach preserves tax-deferred growth on untouched balances—a middle path between maximum tax efficiency and maximum current income.

The Tax Implications You Must Know

Traditional IRA inheritance triggers ordinary income tax on distributions. The earlier you withdraw, the sooner you pay taxes. Roth withdrawals (assuming the five-year rule is met) remain tax-free, making them the more favorable scenario.

The 10-year deadline for non-spouse beneficiaries doesn’t mean you must distribute evenly each year—you can take nothing for nine years, then withdraw everything in year 10. However, this concentration magnifies your tax liability in that final year. Strategic planning around your personal tax bracket becomes essential.

Taking Time With Your Decision

Financial advisors regularly help beneficiaries evaluate inherited accounts against their personal circumstances, time horizons, and tax situations. The complexity of these rules shouldn’t pressure you into hasty choices. Understanding your full range of options—particularly when inheriting a Roth IRA or traditional account—allows you to optimize the decision for your long-term financial security.

Before acting, review all relevant rules specific to your beneficiary status and account type. The government’s framework exists to protect both your interests and the retirement savings purpose these accounts serve.