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Beneficiary IRA

A Beneficiary IRA, also known as an Inherited IRA, is a type of individual retirement account that is opened by a person who inherits an IRA or employer-sponsored retirement plan account after the death of the original owner. The rules for these accounts can vary depending on the relationship of the beneficiary to the deceased and whether the original owner died before or after reaching the age at which required minimum distributions (RMDs) must begin.

As part of the IRA industry, Beneficiary IRAs are subject to specific tax rules and regulations. Under the original terms of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, most non-spouse beneficiaries were required to withdraw all assets from an inherited IRA within 10 years following the death of the original account holder. This rule applies to accounts inherited after December 31, 2019. However, the SECURE Act allows for some exceptions, particularly for beneficiaries who are spouses, disabled, chronically ill, individuals who are not more than 10 years younger than the decedent, or children of the original IRA owner who have not reached the age of majority.

The rules regarding Beneficiary IRAs are designed to ensure the timely payout of the account’s assets, maintaining the tax-advantaged status of the inherited funds while still ensuring that they are distributed and taxed accordingly. These accounts are an important consideration for estate planning and retirement planning within the broader IRA industry.