If you inherit an IRA from anyone other than your own spouse, you can’t roll over the account to your own name. You essentially have two choices:
1. Withdraw all the money and pay income tax on the distribution.
2. Spread out distributions over a number of years. You’ll be subject to the required minimum distribution (RMD) rules, no matter how old you are when you inherit.
For maximum tax deferral, transfer the account to an IRA in the name of the deceased IRA owner for the benefit of you, as beneficiary. If Bonnie Richards inherits an IRA from her uncle Jim Parker, she can transfer the account to an IRA in the name of “Jim Parker (deceased) for the benefit of (f/b/o) Bonnie Richards.”
The RMD rules apply to Roth IRAs as well as traditional IRAs, after the original owner has died and an account has been established for the benefit of the beneficiary. All Roth IRA distributions to a beneficiary will be tax-free, as long as it has been at least five years since the account was established. For a Roth IRA as well as for a traditional IRA, failing to take an RMD will result in a 50 percent penalty.
