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FAMILY FINANCES
JANUARY 25, 2021

Can I roll over an inherited IRA into my own IRA?

Answered by
Debra Greenberg
Director, Personal Retirement Strategy and Solutions, Bank of America
The short answer is yes, if you inherit the IRA from a spouse. But a rollover to your own IRA is not allowed if you inherit the IRA from anyone else.Footnote 1
Before we dive in, keep in mind that tax rules surrounding inherited IRAs are complicated, and it's easy to make mistakes. So be sure to consult a tax advisor before making any decisions.

When my spouse leaves me an IRA

If you are the sole beneficiary, there are two ways to take control of the account:
  • Treat it as your own. When you designate yourself as the account owner, the distribution rules will be the same as if you'd owned the IRA all along.
  • Roll it into an existing IRA. If you already have an IRA, you can roll over the inherited assets to another traditional IRA in your name or convert the assets to a Roth IRA. The simplest way to do that is through a direct, trustee-to-trustee transfer from one account to the other or between one IRA custodian and another. You also could complete an "indirect" IRA-to-IRA rollover, where you take a distribution from the inherited assets and then "roll" those assets into your own already-existing IRA. However, in that case, you'll need to deposit the money into your IRA within 60 days to avoid potential adverse tax consequences. You can do only one indirect IRA-to-IRA rollover within a 365-day period ("conversions" or rollovers from traditional IRAs to Roth IRAs are not subject to the limit). And remember that when converting to a Roth IRA, you will have to pay taxes on the amount you convert to the extent that the funds have not been previously taxed as income.
In either case, the tax treatment of the inherited IRA funds generally will be based on your age, not your spouse's. That means you may have to pay an additional 10% federal tax for premature distributions, in addition to income taxes, on withdrawals before you turn 59½, unless an exception applies, and you'll generally have to take annual required minimum distributions (RMDs) starting at age 72.Footnote 1 Remember, if you are the spouse, any RMDs that the decedent did not satisfy for the year of the decedent's death generally must be taken before the assets can be moved to your own IRA.

When someone other than my spouse leaves me an IRA

You can't roll over the account into your own IRA, but there are a couple of other options:
  • Open an "inherited IRA" account. As the name implies, inherited IRAs are created specifically for accounts that someone else leaves you. The account remains in the name of the deceased, and you are the beneficiary. Generally, the assets will have to be distributed within 10 years of the account owner's death unless an exception applies.Footnote 2 However, if you are an "eligible designated beneficiary," you may withdraw a minimum amount each year over your life expectancy beginning in the year following the decedent's death.Footnote 2
"Tax rules surrounding inherited IRAs are complicated, and it's easy to make mistakes. So be sure to consult a tax advisor before making any decisions."
— Debra Greenberg, Director, Personal Retirement Strategy and Solutions, Bank of America
  • Withdraw the money. If you take a lump-sum distribution, you won't be subject to the additional 10% federal tax on early withdrawals, even if you're younger than 59½, but you will need to pay income tax on the amount that is taxable.
Regardless of the path you choose, it bears mentioning again that consulting a tax advisor is the best way to ensure that you're adhering to the complicated tax rules that govern inherited IRAs.
Ready to get started?
Footnote 1 Effective 1/1/2020, in accordance with new legislation, the required beginning date for RMDs is age 72. You may defer your first RMD until April 1st in the year after you turn age 72, but then you'd be required to take two distributions in that year. Failure to take all or part of an RMD results in a 50% additional tax applicable to the amount of the RMD not withdrawn. In addition, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, all 2020 RMDs have been waived. There are no coronavirus eligibility requirements associated with this change. 2020 distributions that would have been RMD payments prior to the law change may be restored to a plan or IRA subject to the 60-day rollover rule and the one-rollover-per-year limitation. Consult your tax advisor for more information on your personal circumstances.

Footnote 2 An eligible designated beneficiary is a surviving spouse, disabled or chronically ill individual, an individual who is not more than 10 years younger than the decedent, or a child of the account owner who has not reached the age of majority. Individuals other than eligible designated beneficiaries generally must take distributions of their inherited IRA assets by the end of the tenth calendar year following the year of the decedent's death. Most entity beneficiaries would continue to follow the 5 year rule. This applies to distributions where the decedent passed away after 12/31/2019. If the decedent passed away on or prior to 12/31/2019, you may be able to stretch the account over your life expectancy but your beneficiary who inherits the account from you would be subject to the 10-year rule. Check with a tax advisor regarding your specific situation.

You have choices about what to do with your employer-sponsored retirement plan accounts. Depending on your financial circumstances, needs and goals, you may choose to roll over to an IRA or convert to a Roth IRA, roll over an employer-sponsored plan from your old job to your new employer, take a distribution, or leave the account where it is. Each choice may offer different investment options and services, fees and expenses, withdrawal options, required minimum distributions, tax treatment, and different types of protection from creditors and legal judgments. These are complex choices and should be considered with care. For more information on rolling over your IRA, 401(k), 403(b) or SEP IRA, visit our rollover page or call a Merrill rollover specialist at 888.637.3343.
Merrill, its affiliates, and financial advisors do not provide legal, tax, or accounting advice. You should consult your legal and/or tax advisors before making any financial decisions.
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