Changes to Inherited IRAs in 2020

Changes to Inherited IRAs in 2020

When the time comes for a beneficiary to take over the assets of their loved one’s IRA, one of the options is to open an Inherited IRA or Beneficiary IRA. This plan allows the beneficiary to continue the tax-sheltered status of the assets and cash they’ve just inherited.


  1. Contributions cannot be made to the Inherited IRA
  2. IRA Transfers may only be from Inherited to Inherited
  3. Inherited accounts require distributions, even Roth (however, while taxes may be owed, the early distribution penalty does not apply to any inherited account)
  4. Following the SECURE Act, most beneficiaries will be required to cash out the account within ten years
  5. Spouse beneficiaries can rollover to their account
  6. A beneficiary has nine months from the date of death to disclaim the IRA

IRA contributions, in general, can only be made to an IRA if the account holder has earned income, regardless of age (thanks to the SECURE Act). Contribution limits vary based on income and account type. In an Inherited account, contributions are not permitted, and the account must be fully distributed within ten years of the original account holder’s death. Only a few exceptions apply to the new ten-year rule; the SECURE Act effectively eliminated the “Stretch IRA,” which once allowed beneficiaries to take distributions based on his or her life expectancy. Click here to learn more about how the SECURE Act tax law affects retirement plans.

Inherited accounts open after December 31, 2019, no longer require the need for annual distributions to be calculated, however, it is in the best interest of the beneficiary to work with a financial professional to make a plan for distributing within the ten-year period and paying taxes on distributions from an inherited Traditional IRA. The CARES Act has waived all 2020 required distributions, which applies to Inherited accounts opened before December 31, 2019. Click here to learn about the top 7 RMD changes that have occurred with the CARES Act.

Spouses are allowed to inherit an account directly and treat the IRA as their own, which may be especially beneficial if the spouse inherits a Traditional IRA and is not yet RMD (required minimum distribution) age. A spouse beneficiary may still decide to treat the account as an Inherited Account. It is recommended that the spouse speaks with a CPA before making a decision.

If a beneficiary decides they do not want the account they have inherited, they are allowed to disclaim their interest within nine months from the date of death. The beneficiary cannot re-designate the inheritance; the account will likely fall under probate law.

For questions or more information regarding Inherited IRAs, contact Midland by visiting or by calling 239.333.1032.