You Inherited An IRA—Now What?

By: Kim Kass, J.D. Estate Settlement Advisor and Brian Vomund, CPA Vice President, Wealth Management Consultant
While inheriting an Individual Retirement Account (IRA) from a loved one can be an unexpected windfall, the process of figuring out your options regarding what to do with the money can result in major missteps if you’re not careful. Depending on your personal situation and relationship to the deceased, you will have many decisions to make—ones that can have financial and income tax planning consequences. 

Inherited IRA
According to IRS guidelines,² beneficiaries of IRAs fall into one of two categories: those who inherit from a deceased spouse and those who inherit from someone other than a spouse. Each group is governed by a specific set of rules.

US Taxpayers and their IRA Accounts

As the beneficiary of an IRA from your spouse, you have several choices for how you want to handle the funds:
  • You can name yourself as the owner of the account, thus treating the IRA as if it were your own. If you choose this option, you can roll over the funds into another IRA or qualified employer plan, qualified employee annuity plan [403(a) plan], tax-sheltered annuity plan [403(b) plan], or deferred compensation plan of a state or local government [457(b) plan]. Depending on your age, you may have to take a required minimum distribution (RMD) from the account.
  • Or, you can keep the IRA in your deceased spouse’s name and designate yourself as the primary beneficiary of the account. This might be a viable option if your deceased spouse was below the RMD age and you are over the RMD age requirement. If you choose this option, the IRA will have more time to grow without taxation and you can delay taking the RMD until you reach the required age. This is also a viable strategy if you are younger than 59 ½ and need to take distributions from the IRA because distributions from an inherited IRA will avoid the 10% early withdrawal penalty.

If you inherit an IRA from someone other than your deceased spouse, the IRS guidelines do not allow you to treat the account as your own. And as the designated non-spousal beneficiary, you cannot make contributions to the IRA or rollover any assets into or out of the account. Generally, like the original owner of the IRA, you will not owe taxes on the funds until you take a distribution from the account.

The Secure Act passed by Congress in December 2019 changed the way RMDs are handled for non-spousal beneficiaries. Beginning in 2020, inherited IRA funds must be distributed within 10 years of the death of the original owner of the IRA. You are no longer allowed to take distributions from the IRA over your lifetime. 

To understand the full impact of the law to your situation, you should consult with a financial advisor to determine how the new rules affect your strategy for distributions during your lifetime. A tax professional can also help you decide if you should delay or accelerate your IRA distributions during the 10-year distribution period in order to take advantage of lower or higher income tax rates in future years. For example, if you are going to continue to work for the next six years, you may want to delay distributions until the last four years of the distribution period. 

If you are the original owner of the IRA , you also may need to consult with legal and estate planning professionals to help you determine if it’s in your best interest to pass the IRA outright to your heirs or to retain the funds in an irrevocable trust for their benefit. 

Leaving the assets to an irrevocable trust typically results in higher income taxes on the distributions, but this needs to be reexamined under the Secure Act’s new 10-year rule mentioned above. While an irrevocable trust offers asset protection for the beneficiaries from such things as lawsuits, creditors, and divorce, you need to decide if the asset protection is worth the potentially higher income tax rates imposed on the distributions. 

If you decide to retain the assets in trust, you may need to amend the language in your trust document. You may want to consider an accumulation trust rather than a conduit trust so that IRA distributions do not have to be entirely paid out of the trust within the 10-year period, which results in a loss of the asset protection. 

When a spouse or loved one passes away, it can be difficult to deal with all the emotions and details surrounding his or her death. While it’s important to do your homework and carefully weigh the pros and cons of the ways to handle your inherited IRA, you don’t need to face this task alone. Contact Commerce Trust today— we’re here to answer all your questions regarding your options and help you make informed decisions that are in your best interest. 

¹ Source: “Who uses individual retirement accounts?” Briefing Book, The Tax Policy Center,, ©Urban Institute, Brookings Institution, and individual authors, 2020. 
² Source: IRS, Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), 

The opinions and other information in the commentary are provided as of February 23, 2021. This summary is intended to provide general information only, and may be of value to the reader and audience. 

This material is not a recommendation of any particular investment, estate planning or insurance strategy, is not based on any particular financial situation or need, and is not intended to replace the advice of a qualified tax advisor, estate planning or investment professional. While Commerce may provide information or express opinions from time to time, such information or opinions are subject to change, are not offered as professional tax, insurance or legal advice, and may not be relied on as such. 

Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. 

Past performance is no guarantee of future results. 

Diversification does not guarantee a profit or protect against all risk. 

Commerce Trust is a division of Commerce Bank. 




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Kim Kass Estate Settlement Advisor Commerce Trust
Kim is an estate settlement advisor with Commerce Trust. She supports the private client advisors in any decedent matter that results in Commerce being appointed as personal representative or successor corporate trustee. Kim gathers assets, addresses all estate settlement items, and coordinates termination of the trust and/or estate. Kim received her bachelor of arts in political science from the University of Missouri at Kansas City and a juris doctorate from Washington University School of Law. Kim is on the Board of Directors for the KC Downtown Kiwanis Club and the UMKC Women’s Council.


Brian Vomund, CPA, PFS Senior Vice President, Wealth Management Consultant Commerce Trust

Brian is a wealth management consultant for Commerce Trust. He facilitates the introduction of our prospective clients to a comprehensive service team which includes private banking, investment management, trust administration, and financial planning. Brian provides an integrated and seamless client experience as we partner with clients to meet their long-term goals and objectives.

Prior to joining Commerce in 2006, Brian was an associate vice president in private client services, specializing in estate planning as well as IRA and retirement distribution planning. He is a Certified Public Accountant and Personal Financial Specialist.

Brian earned his Bachelor of Science in business administration from Saint Louis University. Brian is a member of the Knights of Columbus and Moolah Shrine organizations and is a past president of the Missouri Society of CPAs on its Estate Planning Committee. In his spare time, Brian prefers to do anything outdoors with his family. Family vacations include activities such as hiking, white water rafting, horseback riding and snow skiing. Brian also enjoys hunting, playing sports and swimming.