Inherited IRA: Learn about your choices

We realize that inheriting assets may be stressful, and you may be interested in continuing the potential for tax-advantaged growth of these assets while avoiding the impact of immediate income taxes.

Depending on your relationship to the original owner of the accounts, different options may be available to you. Please select the tab indicating your relationship to the deceased to learn about them. You will want to discuss all of your options with your attorney or tax advisor before taking action, especially if creditor protection is a concern for you, as the Supreme Court has ruled that Inherited IRAs are not protected under federal bankruptcy laws (although state law creditor protection of inherited IRAs still varies). You can also call a Fidelity Transition Services specialist at 800-544-0003 at any point to help guide you through the process. Be sure to consider all of your available options and the applicable fees and features of each before moving any retirement assets.

If you inherit an IRA or workplace savings account directly from your spouse, you have several options:

  • Option 1: Roll over the inherited assets into your own Traditional IRA.

    When you inherit your spouse's IRA or workplace savings account directly, you have one option available that no other IRA inheritor has: As a surviving spouse, you can transfer your inherited proceeds into your own IRA and treat these assets as if they were your own. For IRAs, the registration type of both IRAs must be the same (Traditional to Traditional or Roth to Roth).

    The benefit of this option is that both the amount and the timing of required minimum distributions (RMDs) are based on your own age.*

    Another benefit is that if you roll over these assets into your own IRA, your RMD will generally be based on the Uniform Lifetime Table (PDF), which assumes that distributions would extend over two lives, yours and a beneficiary 10 years younger than you. With this option, your RMD would be lower than if you transferred your assets to an Inherited IRA.

    Rolling over your assets to your own IRA may be advantageous if you are:

    • Younger than your spouse and your spouse died after age 70½, since this option would allow you to delay taking the RMDs until the year you turn age 70½.
    • Older than age 59½ or you do not need access to these assets until you reach age 59½, since you would not be subject to a 10% early withdrawal penalty.

    Required forms and paperwork

    To roll over inherited IRA assets into your existing IRA, you will need:

    Note: There are some who believe that keeping your spouse's IRA assets separate from your IRA assets is advisable, particularly if creditor protection is a concern.

    To roll over inherited IRA assets into a new IRA, you will need:

    Note: Be sure to consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

  • Option 2: Transfer your inherited assets to an Inherited IRA

    You have the option of transferring the IRA or 401(k) assets you inherit from your spouse to an Inherited IRA. With an Inherited IRA, the amount of your required  minimum distributions (RMDs) will be based on your age and will be recalculated each year based on the factors in the IRS Single Life Expectancy Table.

    The timing of the initial distribution may be based on your spouse's age at the time of his/her death. If your spouse was:

    • Older than age 70½, you must begin taking RMDs by December 31 of the year following your spouse's death.
    • Younger than 70½, you may be able to delay RMDs until your spouse would have turned 70½.

    Transferring your assets to an Inherited IRA may be advantageous if you are not concerned about creditor protection issues and are:

    • Older than your spouse and your spouse died before age 70½, since this option would allow you to delay taking the RMDs until the year your spouse would have turned age 70½.
    • Younger than age 59½ and you need access to these assets immediately, since you would not be subject to a 10% early withdrawal penalty.

    Required forms and paperwork

    To transfer your inherited IRA assets into an Inherited IRA, you will need:

    Note: Be sure to consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

  • Option 3: Roll over and convert inherited IRA assets to your own Roth IRA

    When you inherit your spouse's IRA or 401(k) directly, you have the option of converting it into a Roth IRA in your name. Roth IRAs have many benefits, including the potential for tax-free growth of assets and no RMDs during the lifetime of the original owner. However, you will need to pay taxes on the amount converted from the non-Roth IRA into the Roth IRA.

    Converting your inherited assets to a Roth IRA is more likely to be advantageous if you expect higher taxes in retirement and you can afford to pay the taxes with funds from other sources.

    Required forms and paperwork

    To roll over and convert inherited IRA assets into your existing Roth IRA, you will need:

    To roll over and convert inherited assets into a new Roth IRA, you will need:

    Note: Be sure to consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

  • Option 4: Disclaim all or part of your inherited assets

    If, after consulting with your attorney and tax advisor, you find that you will not need or want all or some of your inherited IRA assets during your lifetime, you may want to disclaim—or refuse to inherit all or part—of these assets. Call a Fidelity Transition Services specialist at 800-544-0003 if this is the case.

    Your disclaimed inheritance would then be passed on directly to the next eligible beneficiaries. It is important to note that the beneficiaries must be named on the IRA, otherwise assets will pass according to the rules of succession as outlined in the applicable Fidelity IRA Custodial Agreement and Disclosure Statement (PDF). Any required minimum distributions would be based on the other beneficiaries' ages, rather than your own.

    If the other beneficiaries are younger than you, you would, in effect, be stretching out the potential for tax-deferred growth on this IRA legacy. For example, if your spouse named you as the primary beneficiary of his IRA, and your son as the contingent beneficiary, if you disclaim your IRA inheritance (meeting all the necessary requirements), your son would inherit all of the IRA assets. Since the required minimum distributions would now be based on his life expectancy, the RMD amount would be lower, leaving more assets in the account to potentially compound tax-deferred.

    Disclaiming all or part of your IRA inheritance may be advantageous in the following situations:

    • You don't need all or some of these assets and you'd like a younger beneficiary to be able to maximize the potential for tax-deferred growth by stretching distributions out over his/her lifetime.
    • The decedent's estate was not structured ideally for estate tax purposes. A disclaimer may be used to allow assets that would otherwise be passed to the surviving spouse to go to other beneficiaries. While assets left to a spouse are generally not subject to estate taxes, they will be part of your estate upon your passing. If you can afford it and it aligns with your goals, you may want to consider disclaiming an amount up to the estate tax exemption limit in order to take advantage of your estate tax exemption.

    Note: If you want to take advantage of this option, you must disclaim assets within nine months of the IRA owner's death—before you've actually taken possession of those assets. A disclaimer is an irrevocable decision to give up your right to inherit the IRA assets. Be sure to consult with a tax or legal advisor about this option and to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

  • Option 5: Leave the assets in the plan

    If you inherited a workplace savings account, the plan from which you are inheriting assets may allow you to leave those assets in the plan. Details vary by plan, so discuss that option with the plan administrator for that plan.

    If you choose to transfer Fidelity Retirement Plan assets to an Inherited Retirement Plan Account and leave the assets in the plan, you generally must take RMDs according to the plan's distribution options available to spouse beneficiaries. Also, the plan must continue to be administered by the sponsoring employer. If the decedent was the sponsoring employer, an Inherited Plan Account is not an ongoing option. If the deceased Retirement Plan Account owner was over age 70½ and still owed any RMDs for the year he or she died, you must generally withdraw the appropriate amount by December 31 of the year the Retirement Plan Account owner died. The RMD amount distributed to you as beneficiary in the year of death must be based on the Retirement Plan Account owner's RMD schedule but is distributed under your tax ID number. RMD amounts cannot be rolled over.

If you inherit an IRA or workplace savings account directly from someone other than a spouse, you have several options:

  • Option 1: Roll over the inherited assets to a Fidelity Inherited IRA account and begin taking required minimum distributions by December 31 of the year following the account owner's death.

    When you move your inherited assets certain details are dictated by the type of retirement account you inherited, but generally if you're inheriting from an IRA (e.g., Traditional, Roth, Rollover, and SIMPLE), if you choose to directly roll over your inherited IRA into a Fidelity Inherited IRA, you'll control both how your inherited assets are invested and to whom they pass upon your death. Your RMDs will also generally be based on your own life expectancy.

    Note: It is very important to make sure the assets are directly rolled over to an Inherited IRA and that the other firm does not issue a check in your name for those assets.

    Required forms and paperwork

    To transfer your inherited IRA assets into an Inherited IRA, you will need:

    If you're inheriting from a Fidelity Profit Sharing, Money Purchase Plan, or Self-Employed 401(k), you can choose to transfer your inherited Retirement Plan assets into a Fidelity Inherited Retirement Plan Account and then directly roll over those assets into a Fidelity Inherited IRA, so that you control how your inherited assets are invested and to whom they pass upon your death. Your RMDs will also generally be based on your own life expectancy. Call a Fidelity Transition Services specialist at 800-544-0003 for help transferring these assets.

    If you're inheriting from another type of workplace savings account such as a 401(k) or 403(b), you can directly roll over an inherited workplace savings account to an Inherited IRA. This option allows you to begin taking RMDs by December 31 of the year following the retirement plan owner's death. Note that all plans must allow for a non-spouse beneficiary to roll over into an Inherited IRA as a distribution option. Speak to the inherited plans provider on how to handle the transfer of these assets.

  • Option 2: Take a cash distribution of your share of the inherited amount.

    In order to do so, the assets must first be transferred to you via an Inherited IRA. Note that this will have tax consequences, as the amount will be included in your gross income.

    Generally, in order to take a cash distribution, the assets must first be transferred to you via an Inherited IRA or Inherited Retirement Plan Account. There are details dictated by the type of investment account you inherited, but generally your distribution is includable in your gross income and will be subject to ordinary state and federal income taxes. Call a Fidelity Transition Services specialist at 800-544-0003 for help.

    Tax laws require mandatory 20% withholding for all distributions taken from retirement plan accounts, such as a 401(k) or 403(b).

  • Option 3: Disclaim all or part of your inherited assets within nine months of the owner's death so they pass to the next eligible beneficiaries.

    If, after consulting with your attorney and tax advisor, you find that you will not need all or most of your inherited assets during your lifetime, you may want to disclaim—or refuse to inherit all or part—of your inherited assets. If this is the case, call an Transition Services specialist at 800-544-0003.

    Your disclaimed inheritance would then be passed on to the next eligible beneficiaries. Any required minimum distributions would then be based on the other beneficiary's age, rather than your own. If the other beneficiaries are younger than you, they would, in effect, be stretching out the potential for tax-deferred growth on these assets.

    Tax rules require you to disclaim assets within nine months of the IRA/Retirement Plan account owner's death. Be sure to consult with a tax or legal advisor concerning this option and to verify if an Inheritance Tax Waiver is required by the decedent's state of residence. A disclaimer is an irrevocable decision to give up your right to inherit the IRA/Retirement Plan assets.

  • Option 4: Leave the assets in the plan. Depending on the plan, you may be able to transfer the inherited assets to an inherited account in the plan.

    If you inherited a workplace savings account, the plan from which you are inheriting assets may allow you to leave those assets in the plan. Discuss that option with the workplace savings plan administrator for that plan, as details vary for each plan.

    If you choose to transfer Fidelity Retirement Plan assets to an Inherited Retirement Plan Account and leave the assets in the plan, you generally must take RMDs according to the plan's distribution options available to non-spouse beneficiaries. Also, the plan must continue to be administered by the sponsoring employer. If the decedent was the sponsoring employer, an Inherited Retirement Plan Account is not an ongoing option.

    If the deceased Retirement Plan Account owner was over age 70½ and still owed any RMDs for the year he or she died, you must generally withdraw the appropriate amount by December 31 of the year the Retirement Plan Account owner died. The RMD amount distributed to you as beneficiary in the year of death must be based on the Retirement Plan Account owner's RMD schedule but is distributed under your tax ID number. The RMD cannot be rolled over. If you have questions, please call a Transition Services specialist at 800-544-0003.

Important considerations

Required minimum distributions (RMDs): Generally, the deadline for beginning RMDs from an Inherited IRA is December 31 of the year following the original owner's death. If the decedent was 70½ or older at the time of death, any RMD amounts due prior to or during the year of the direct rollover cannot be rolled over. Also, you must generally withdraw the appropriate amount by December 31 of the year the original owner died. The RMD amount is distributed to you as beneficiary in the year of death and must be based on the original owner's RMD schedule but is distributed under your tax ID number.

See RMD Rules for Inherited IRAs for more information and examples.

Multiple beneficiaries: If you're sharing inherited IRA assets with other beneficiaries, you should set up your own Inherited IRA for your portion of the inherited IRA assets by December 31 of the year following the original owner's date of death. See your tax or legal advisor about your unique situation. Any beneficiaries who do not separate their inherited IRA assets by the cut-off date (December 31) may be required to base their RMDs on the age of the oldest beneficiary on the account. In some instances, this calculation can accelerate the RMDs from your account.

Creditor protection: Since the Supreme Court's decision on Inherited IRAs poses a number of important asset protection planning opportunities, customers should seek professional advice from their lawyer or tax advisor regarding estate planning strategies, beneficiary designations, and withdrawal strategies. Beneficiaries should be sure to consider all available options and applicable fees and features of each before moving retirement assets, establishing an Inherited IRA, or taking a distribution from any retirement account.

An IRA owner can name an entity (such as a charity or other organization), an estate, or a trust as the account's beneficiary. These beneficiaries must transfer their inherited IRA assets to an Inherited IRA. Call an Transition Services specialist at 800-544-0003 for help.

When the beneficiary is not a person and the IRA owner was living on April 1 of the year after turning 70½, IRS required minimum distributions (RMDs) are based on the remaining life expectancy of the IRA owner as if he or she were still alive. If the owner was younger than 70½ when he or she died, the assets must generally be completely distributed by December 31 of the fifth year following the year of the IRA owner's death.

Entity

If the beneficiary is an entity and is transferring inherited IRA assets to an Inherited IRA, the following forms and paperwork are required:

  • Fidelity IRA and Inherited IRA Application
  • Copy of the decedent's death certificate
  • If applicable, a Fidelity Corporate Resolution, or Fidelity Resolution for Unincorporated Business, as applicable (forms sent upon request)
  • Documentation confirming who is authorized to sign on the entity's behalf

Note: Consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

Estate

  • Fidelity IRA and Inherited IRA Application
  • Taxpayer Identification Number (TIN) for the estate
  • Copy of the decedent’s death certificate
  • Probated Estate: Certified copy of court document appointing legal representative of the estate, dated within 90 days of receipt
  • Non-Probated Estate: Small Estate Affidavit if estate meets state law criteria
  • Please note that Fidelity cannot open an estate account with a Small Estate Affidavit.

Note: Consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

Trust

When the beneficiary is a trust and the trust qualifies as an IRS-defined look-through trust, the trust's oldest beneficiary may then be deemed to be the IRA's designated beneficiary for RMD calculation purposes and that beneficiary's life expectancy is then used in the calculation. To qualify as a look-through trust, the following criteria need to be met:

  • Must be valid under state law
  • Must be irrevocable (or revocable while the IRA owner is alive, provided the trust becomes irrevocable upon the individual's death)
  • Must have named identifiable beneficiaries
  • Must provide the plan administrator with either a copy of the trust instrument or qualifying documentation of the trust

If the beneficiary is transferring inherited IRA assets to an Inherited IRA, the following forms and paperwork are required:

  • Fidelity IRA and Inherited IRA Application
  • Copy of the decedent’s death certificate
  • If the trust is intended to comply with the IRS look-through trust rules to satisfy RMD requirements, we require certification from the trustee that the trust meets the look-through requirement and instruction from the trustee on how to distribute the IRA.
  • We do not require the entire trust document, but certain pages described as follows: copy of the first page of the trust document (not including the cover) showing the full official name of the trust, the page(s) identifying trustee and successor trustees, and the page(s) with trustee signatures.

Note: Consult with your tax advisor to verify if an Inheritance Tax Waiver is required by the decedent's state of residence.

Inheriting a Retirement Account

If you've inherited an IRA or other retirement account, find out how the specifics of your situation will affect the decisions you need to make.

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