IRA Inheritance Planning FAQs

IRAs are governed by federal tax law, not just state probate rules. Beneficiaries must follow strict distribution schedules, and mistakes can trigger unnecessary taxes or penalties.

Proper planning ensures your IRA passes smoothly, minimizes tax burdens, and aligns with your overall estate plan.

You can name almost anyone as a beneficiary:

• Spouse – enjoys the most flexibility under federal law.
• Children or other individuals – must follow specific distribution rules.
• Trusts – can be named to control how beneficiaries receive funds.
• Charities – may be designated for philanthropic goals.

Your choice of beneficiary directly affects how the IRA is taxed and distributed.

A surviving spouse has unique rights:

• Treat the IRA as their own by rolling it into their account.
• Remain a beneficiary and take distributions based on their life expectancy.
• Delay distributions until the deceased spouse would have reached the required beginning date.

These options provide flexibility to manage taxes and retirement income.

The SECURE Act of 2019 eliminated the “stretch IRA” for most non‑spouse beneficiaries. Instead, they must withdraw the entire IRA within 10 years of the account owner’s death. This accelerated taxation compared to prior lifetime distribution rules.

SECURE Act 2.0, effective beginning in 2025, clarified and expanded IRA rules:

• RMD age increase: The age to begin required minimum distributions rose to 73, and will eventually rise to 75.
• Penalty reduction: The penalty for failing to take an RMD dropped from 50% to 25%, and to 10% if corrected promptly.
• Inherited IRA clarification: SECURE 2.0 confirmed that if the original owner died before RMDs began, beneficiaries must fully distribute the account within 10 years, but annual withdrawals are not required.
• Roth accounts: RMDs are no longer required from Roth accounts in employer retirement plans.
• Catch‑up contributions: Individuals ages 60–63 can make larger catch‑up contributions to retirement accounts.

These changes affect both account owners and beneficiaries.

Yes. Certain “eligible designated beneficiaries” may still use lifetime distributions:

• Surviving spouses
• Minor children (until they reach majority)
• Disabled or chronically ill individuals
• Beneficiaries less than 10 years younger than the account owner

For most other beneficiaries, the 10‑year rule applies.

Naming a trust as IRA beneficiary can provide control over distributions, especially for younger or financially inexperienced heirs.

However, trusts must be carefully drafted to qualify as “see‑through” trusts under IRS rules. Otherwise, unfavorable tax treatment may apply. SECURE Act 2.0 also clarified rules for trust beneficiaries, making proper drafting even more critical.

Inherited traditional IRA distributions are generally taxable as ordinary income. Planning focuses on timing withdrawals to manage tax brackets. For example, spreading distributions across several years may reduce overall tax liability compared to taking a lump sum.

California does not impose additional inheritance taxes on IRAs. However, state income tax applies to traditional account distributions, in addition to federal tax.

Coordinating IRA planning with California probate rules ensures assets pass efficiently and beneficiaries avoid unnecessary delays.

Yes. You can divide your IRA among multiple beneficiaries. Each beneficiary’s share is treated separately for distribution purposes. Clear beneficiary designations prevent disputes and ensure each person receives the intended portion.

If no beneficiary is designated, the IRA typically passes to your estate. This can trigger probate and limit distribution options, often requiring faster withdrawals and higher taxes. Naming beneficiaries directly is the best way to preserve flexibility and avoid probate.

Roth IRAs follow similar inheritance rules, but distributions are generally tax‑free. Beneficiaries must still follow the 10‑year rule unless they qualify for exceptions. Roth IRAs can be powerful tools for passing wealth because they avoid income tax on withdrawals.

IRA inheritance planning involves complex tax rules and coordination with estate documents. Working with an estate planning attorney ensures your IRA is integrated into your overall plan, beneficiaries are properly designated, and trusts are drafted to meet IRS requirements.