What Are the Distribution Rules for an Inherited IRA?

Your options when you inherit an IRA from your spouse

There are several options for you if you inherited an IRA from a spouse. However, those options do change depending on how old your spouse was.

If your spouse was under 70 ½ years of age

You have four options for your inherited IRA.

  1. Open an inherited IRA and use either the life expectancy method or the five-year method — With either of these methods, you will transfer the assets into an inherited IRA in your name. Distributions in the life expectancy method begin no later than the end of the year the late asset holder would have reached the age of 70 ½. Annual distributions are spread over life expectancy that is based on age. You will also not be penalized for early withdrawal. For the five year method, money is available any time up until the end of the year of the fifth year the account holder passed. After that, all assets will be distributed. You are taxed on each distribution and will not be penalized for early withdrawal.
  2. Go for the lump-sum distribution — In this option, all assets in the late account holder’s IRA are distributed immediately and all at once. You will have to pay taxes on this distribution and this could potentially move you to a higher tax bracket.

If your spouse was over 70 ½ years of age

Your options are the same in this case, except for the five-year method.

  1. Open an inherited IRA with the life expectancy method — In this case, required minimum distributions are taxed per distribution (and are mandatory).
  2. Lump-sum distribution.

Your options when you inherit an IRA from a non-spouse, like a parent, sibling, or friend

Things are only slightly more complicated if you inherit an IRA from a non-spouse. From Fidelity.com:

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