When my husband died, I inherited his traditional individual retirement account (IRA). Since I was listed as the beneficiary for the account, it fortunately did not have to go through probate. My financial advisor told me that they would simply convert it into an “inherited IRA” for me. At the time I didn’t know what an inherited IRA was, and they didn’t inform me of any other options, so I followed their recommendation.

I started managing my money last year and transferred my inherited IRA to Vanguard. After filling out a short questionnaire after the transfer, Vanguard now automatically calculates for me what my required minimum distribution (RMD) is every year and lets me know the status of whether or not I’ve taken it.

What is a RMD, you ask? It is the minimum amount of money the government requires to be withdrawn from certain retirement accounts, including the traditional IRA. You must calculate and withdraw a RMD every year after turning 73, or else pay a 25% penalty from the Internal Revenue Service (IRS) on what you should’ve withdrawn. RMDs are calculated by dividing the account’s prior year-end market value by a life expectancy factor published by the IRS. They get bigger and bigger every year until your account is eventually depleted.

Now that I’m studying to be a financial planner, I’ve learned that when you inherit an IRA from your spouse, you have three options of how to handle the account:

Option A: Roll over the assets into a new or existing traditional IRA in your own name.

This straightforward approach is best if you do not need to access the money before you turn 59.5. With this approach the IRA is treated as yours, which means that once the transfer is complete, you’ll follow the same IRA rules you would normally for a traditional IRA. In other words, you can contribute a maximum amount each year, and you must start taking RMDs at age 73*. For 2025, the IRA contribution limits are $7,000 for those under age 50, and $8,000 for those age 50 or older.

If you are not yet 73, but your spouse had started taking RMDs, this approach allows you to delay taking RMDs until you are 73. However, if your spouse had already started taking RMDs but had not taken the required amount the year of their death, you will need to take their calculated RMD for that year.

Option B: Transfer the assets into an inherited IRA.

This approach is best if you need to access the money before you turn 59.5. You cannot contribute to an inherited IRA, but you can make penalty-free withdrawals anytime. The start date for taking RMDs from inherited IRAs depend on your spouse’s age at the time of death.

• If your spouse was not yet 73, you must start taking RMDs by Dec. 31 of the year following your spouse’s death OR by Dec. 31 of the year your spouse would have turned 73, whichever is later.
• If your spouse had reached the RMD starting age of 73, you must take their calculated RMD during the year of their death (if they hadn’t already done that), then start taking your own RMDs the following year.

Here’s a comparison of the first two options:

Your Age	Option A: Roll over the assets into a traditional IRA in your name	Option B: Transfer the assets into an inherited IRA
Under age 59.5	Contributions: You can contribute the maximum every year. Distributions: You’ll be penalized for taking distributions. RMDs: You do not need to take RMDs.	Contributions: You cannot contribute to it. Distributions: You can take penalty-free distributions anytime. RMDs: Whether you need to take RMDs depends on your spouse’s age when they died.
Between ages 59.5 and 73*	Contributions: You can contribute the maximum every year. Distributions: You can take penalty-free distributions anytime. RMDs: You do not need to take RMDs.	Same as above
Over age 73*	Contributions: You can contribute the maximum every year. Distributions: You can take penalty-free distributions anytime. RMDs: You must take RMDs.	Same as above

You can always choose to transfer the assets into an inherited IRA and later decide to roll it over into your own IRA. This might make sense once you reach age 59.5, or no longer need to use those assets.

Option C: Disclaim the inherited assets.

Consider this approach if you will never need the money, and you would like to help the next eligible beneficiary, assuming one is named on the IRA. You can choose to refuse all or some of the money, in which case the inherited assets will pass to the next eligible beneficiary. The decision to disclaim assets generally must be made within nine months of your spouse’s death.

Note: Non-spouse beneficiaries of inherited IRAs must take all RMDs over a ten-year window or else the IRS will charge them a 25% penalty. There are some exceptions, but I won’t go into detail since that is not the focus of this blog post.

Conclusion

Talk to your financial or tax advisor to determine which approach is best for you. I’ve tried to keep the explanation as simple as possible, but the rules around taking RMDs from inherited IRAs are complex and there are also tax consequences to consider.

*Due to changes in federal law, the age at which you must start taking RMDs depends on when you were born. If you turned 72 by the end of 2022, you should already be taking your RMDs. If you did not turn 72 by the end of 2022, you must take your first RMD from your traditional IRA by April 1 of the year after you turn 73. 

Disclaimer: While I’m studying to be a financial planner, I am not yet an expert in retirement accounts and am merely passing along information based on my understanding of them.