Non Spouse Inherited Ira

In most instances, the beneficiary of an IRA is the spouse. Occasionally, it is a Non Spouse who inherits an IRA. The Spouse is allowed to treat the IRA as their own by making contributions or doing a Rollover into their own IRA.

In the case of a Non Spouse, the beneficiary is no longer allowed to make contributions to the IRA and they are not allowed to rollover into their own account. However, they are required to take distributions according to a certain time frame.

1) The entire amount must be taken as a distribution by the end of the fifth year following the initial owner's death. These distributions are usually taken as 5 equal payments. These distributions are taxable at the current rate of the beneficiary.

2) The entire amount must be taken as a distribution beginning the end of the first year following the initial owner's death. This distribution is allowed to be taken over the Single Life Expectancy of the beneficiary according to tables established by the IRS. The number of distributions allowed depends on the age of the beneficiary. This is actually the preferred method as the amount of the distribution is usually smaller than over the 5 year time period making the tax liability less.

3) If the initial owner was 70-1/2 or older then the distributions will continue at the amount the initial, owner was required to take unless the account cannot be cleared out within the 5 year time frame. If this is the case, the distribution must be increased to an amount that will assure it will be clear within 5 years.

A Non Spousal beneficiary would be smart to hire a Financial Planner to assist them in making the proper decision to make sure they don't make a mistake and be required to pay a 50% tax rate for not following the IRS Rules. So, seek assistance if you're unsure of the IRS requirements.