By Stuart Canzeri, Founder of Peachtree Financial
The Gift No One Asks For
Losing a loved one is hard. Inheriting an IRA can feel like both a blessing and a responsibility – and maybe a buckle-up moment when you realize it comes with tax implications and rules galore. When you’re sorting through paperwork, memories, and new responsibilities, it’s easy to feel lost – or even alone.
But you’re not. The process may be complicated, but it’s also a way to keep your loved one’s legacy alive. As the iconic Simple Minds song asks, “Don’t you forget about me?” – handling this inheritance thoughtfully is one way to remember.
What Exactly Is an Inherited IRA?
An inherited IRA is any Individual Retirement Account passed to a beneficiary after the original owner dies – whether from a parent, spouse, or friend. There are three types: spousal inherited IRAs, non-spouse inherited IRAs, and those inherited through trusts or estates. Each comes with its own timeline and rules, which can feel overwhelming – like trying to recognize a familiar tune under new circumstances.
So, before you do anything, pause. “Will you recognize me?” echoes the lyric, and in this context, it’s about recognizing your unique relationship to the account, and the person who left it to you.
Clarify Your Relationship to the Deceased
If you’re the surviving spouse, you have maximum flexibility. You can roll the IRA into your own account, treat it as your own, and delay Required Minimum Distributions (RMDs) until age 73. That means continued tax‑deferred growth for many years.
If you’re a non‑spouse heir, under the SECURE Act (2019), most must empty the account within 10 years of the original owner’s death – a rule often referred to as the “10‑Year Rule.” There are no annual withdrawals required – unless the original owner had already taken RMDs – but come year ten, the account must be fully distributed.
It’s a lot to take in. But just as the song reminds us, “Won’t you come see about me?” – you don’t have to figure this out alone. Seek help if you need it.
Other exceptions exist for eligible designated beneficiaries – those who qualify as surviving spouses, minor children (under 21), disabled or chronically ill individuals, or someone not more than 10 years younger than the original owner. These beneficiaries can follow a life‑expectancy schedule instead of the 10‑year rule, but only until the death date triggers the switch.
Ask Yourself: What’s Your Goal?
An inherited IRA isn’t just unexpected money – it can be a powerful tool if used thoughtfully. Maybe you want to let it grow tax‑deferred for as long as possible, taking small withdrawals yearly. Or maybe you need cash now and don’t mind paying lump‑sum taxes.
Here, too, the song’s refrain is relevant: “As you walk on by, will you call my name?” – What are you calling this gift in your own life? Security? Relief? A new beginning?
Understanding your objective – whether it’s growing retirement savings or paying off debt – guides your strategy and timing.
Tax Bite: What You’ll Owe (And How to Soften It)
TTraditional IRAs are taxed as ordinary income when withdrawn. Roth IRAs are generally tax‑free – if they meet the 5‑year holding requirement. To manage the tax impact, consider:
- Spreading distributions across several years to avoid income spikes
- Timing withdrawals in low-income years
- Doing partial Roth conversions to pay taxes now at lower rates
Remember, you’re managing not just numbers, but someone’s legacy – “Don’t you try to pretend…” that it’s only about the math. It’s about using what you’ve received wisely, in a way that honors the person who left it to you.
Required Minimum Distributions (RMDs): The Basics
Spouse heirs generally delay RMDs until age 73. Non‑spouse heirs follow the 10‑year rule, with no annual RMDs – unless the original owner had started them already, or an exception applies. Missed deadlines can incur steep IRS penalties – up to 25% of the missed distribution.
It’s one more reminder that, with inherited IRAs, “slow change may pull us apart” – but smart planning keeps your options – and your loved one’s wishes – together.
Other Considerations & Tax-Smart Moves
Inherited IRAs open up strategic opportunities:
- Qualified Charitable Distributions (QCDs): If you’re age 70½+, direct transfers to charity – up to $108,000 in 2025 – are tax-free and count toward RMDs.
- Review fees and investments: Some inherited accounts have limited options or high fees – shop around for better custodians and funds.
- Let Roth IRAs grow: Inherited Roths that meet 5-year holding can continue to grow tax-free for up to 10 years or under the schedule allowed.
The Importance of a Proactive Plan
The worst mistake? Doing nothing. Even if you don’t plan to use the funds imminently, the IRS has a timetable – and it isn’t optional. Work with a financial advisor to build a tailored strategy, accounting for taxes, RMDs, and your long-term goals. At Peachtree Financial, we believe inherited IRAs are both a financial asset and a piece of a living legacy.
An inherited IRA may come with strings attached – but it also comes with opportunity. It can support your family, fund major goals, or fuel retirement planning – if you handle it thoughtfully.
So don’t freak out. Ask questions. Lean on proven advice.
And, when you wonder how to honor what you’ve been given, remember that every wise choice answers that timeless call:
“Don’t you forget about me…”
Because the way you plan today becomes tomorrow’s legacy.
