Most people are aware of the tax rule that requires you to begin taking distributions from your IRAs by April 1st of the year following the year they turn 70 ½. These rules generally require you to withdraw your IRAs over your life expectancy or the joint life expectancy of you and your spouse.
If you inherit an IRA from your spouse, you are permitted to rollover the IRA into your own IRA and treat the inherited IRA as your own IRA. In this case, your mandatory distribution would not begin until you reach the age of 70 ½. Care should be taken if you, as the surviving spouse, are under the age of 59 ½ as you may be penalized if you take distributions after you have rolled over the IRA.
If you inherited an IRA from someone other than a spouse, you are required to either withdraw the entire account within five years or take withdrawals based on your life expectancy. This is considered “stretching” the IRA as, for example, the life expectancy of a child who inherits an IRA would be significantly greater than the parent-IRA owner.
Finally, if the IRA is payable to an estate, or a predeceased beneficiary, the IRA must be fully withdrawn within five years of the IRA owner’s death. For this reason, we often suggest naming not only a primary IRA beneficiary but also a contingent or secondary beneficiary.