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Military Finances 301: Inheriting an Inherited IRA Thumbnail

Military Finances 301: Inheriting an Inherited IRA


The SECURE Act significantly changed the tax planning of those who inherit a retirement account (TSP, IRA, 401(k), Roth IRA as examples). But what does it do for those who inherit inherited IRAs? The rules are not that simple.


The SECURE Act added a couple of new words to the Tax Code. It is important to know them for this discussion.

  • Eligible Designated Beneficiaries. Fall into one of the following classes 
    • Minor Children of Decedent (only until the age of majority)
    • Disabled Persons
    • Those Chronically Ill
    • Those Not More Than 10 Years Younger than Decedent
    • Spouses
    • Certain Trusts
  • Non-Eligible Designated Beneficiaries.  Are one of two groups     
    • Non-Spouses (That Don't Meet One of the Criteria Above)
    • Certain Trusts

How the inherited, inherited IRA is handled depends on whether the individuals involved are eligible or non-eligible designated beneficiaries. There are 3 scenarios to consider (they all assume that there are funds in the account upon the second passing).

1. Account Owner Dies in 2020 or Later and First Beneficiary is an Eligible Designated Beneficiary

Here is a potential scenario. Dad dies in 2020. Mom inherits the IRA (is allowed to stretch the IRA based on her life expectancy) and passes away later that year. You inherit the IRA from Mom. The law states that any beneficiary who inherits and inherited IRA is a non-eligible designated beneficiary. Therefore, the funds in the IRA must be paid out within 10 years of the second death. There is a very specific exception for a spouse who inherits an inherited IRA, but it is too complicated for this article.

2. Account Owner Dies prior to 2020 and First Beneficiary Dies in 2020 or Later

This case is very similar to the scenario above. The individual who inherits the inherited IRA, will have to take all the assets out in 10 years.

3. Account Owner Dies in 2020 or Later and First Beneficiary is a Non-Eligible Designated Beneficiary

Let's use an example for this one too. Great Uncle Charlie lived a long life, but passed away in 2020. Your Mom who is more than 10 years younger than Uncle Charlie inherits the IRA. Mom passes away in 2024 and you inherit the IRA. Since Mom is a non-eligible designated beneficiary, she must empty out Uncle Charlies account by 2030. She took a few distributions prior to 2024, but there are funds still in the account. When you inherit the IRA, you might think you'd get an additional 10 years to take the assets out of the account. You'd be wrong. Just like Mom, you have to empty the account not later than 2030

Retirement Accounts are the Most Complicated Part of Tax Code 

I'm convinced that handling distributions from retirement accounts and specifically inherited retirement accounts is the one of the most complicated "typical" transactions addressed in the Tax Code. Make sure you know this stuff cold. 

If you found this article useful, you might like the following blog posts:

Military Finances 301: Timing Inherited IRA Distributions After the SECURE Act

Watch Out for this Tax Tripwire

Military Tax Benefit:  Rollover of SGLI Proceeds to a Roth IRA

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