Inheriting an inherited IRA

Steve Merrell |

Q: I am 72 years old. When my only brother died earlier this year, he left his IRA to me. I know the rules for inherited IRAs changed recently and that I need to make sure this inherited IRA is emptied within ten years of my brother’s death. However, what happens if I die and my children inherit this IRA before those distributions are complete?

A: The SECURE Act passed by Congress last December significantly changed the way inherited IRAs work. Before the SECURE Act, the beneficiary of an inherited IRA could spread withdrawals from the IRA over his or her remaining life expectancy. Under the new rules, everything needs to be withdrawn before the end of the tenth year following the death of the original IRA owner, unless the beneficiary is what is called an “eligible designated beneficiary.” 

Eligible designated beneficiaries include surviving spouses, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, or minor children of the decedent. Assuming you are not more than 10 years younger than your deceased brother, you would be considered an eligible designated beneficiary. As such, you have a choice: You can follow the 10-year rule or stretch your distributions using the IRS’s single life expectancy table just like before the SECURE Act.

Given your age, the 10-year rule may be an attractive option since you can defer all distributions until you turn 82. However, younger eligible designated beneficiaries might find the single life expectancy option more attractive since they would be able to stretch their distributions over their (longer) remaining lifetimes.

When someone inherits an inherited IRA, that person is referred to as a successor beneficiary. This is different from a contingent beneficiary. A contingent beneficiary is the person designated to inherit an IRA if the primary beneficiary is unavailable. A successor beneficiary is the person who inherits the IRA after the original inheritor dies.

Successor beneficiaries now fall into one of three possible categories. First, those who inherit an IRA from a post-SECURE Act eligible designated beneficiary. Second, those who inherit from a pre-SECURE Act original beneficiary. And third, those who inherit from a post-SECURE Act non-eligible designated beneficiary.

In the first two scenarios, the successor beneficiary will most likely get a full 10 years before any distribution is required. However, if the successor beneficiary falls into the third category, the original 10-year clock keeps ticking. In other words, successor beneficiaries in the third category must distribute all assets from the IRA before the end of the tenth year following the original IRA owner’s death. If the successor beneficiary inherits the IRA seven years after the original owner dies, the successor beneficiary will only have three years before the full distribution must be completed.

It is worth noting that anyone who inherits an IRA from an eligible designated beneficiary cannot be considered an eligible designated beneficiary themselves, even if they meet the eligibility criteria. The IRS language governing this situation states very clearly: “If an eligible designated beneficiary dies before the portion of the employee’s interest is entirely distributed…the remainder of such portion shall be distributed within 10 years after the death of such eligible designated beneficiary.”

In other words, your children, no matter their circumstance, will be subject to the 10-year rule when they inherit whatever remains of your brother’s IRA.

Finally, since we are talking about the arcane world created by the SECURE Act, there is one other situation that bears mentioning. Let’s suppose an IRA owner dies before he is required to begin taking minimum distributions and that he leaves his IRA to his wife. Suppose further than his wife also dies before he would have been required to begin taking minimum distributions. In this situation, the inheriting spouse is no longer considered a designated beneficiary of the original owner. Rather, she is treated as if she were the original owner and her successor beneficiaries are treated as if they were designated beneficiaries. As such, if the criteria apply, her beneficiaries could possibly escape the 10-year rule.


Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., a Wealth Management Firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to