How to Open an Inherited IRA: What to Do in the First 90 Days

Knowing how to open an inherited IRA correctly matters because a few early mistakes, such as depositing a check made out to you or titling the account the wrong way, can create taxes that can’t be reversed. This guide covers the steps in order, from contacting the custodian to setting up a withdrawal plan, for spouses, children, and other beneficiaries.

Opening and managing inherited accounts is a core part of what we do at Inclinevest Wealth Management. If you’d like help with yours, you can schedule a call or learn more about inherited IRA financial planning.

Is There a Deadline for Opening an Inherited IRA?

No rule requires you to open an inherited IRA within 90 days of the original owner’s death. The 90-day window is a practical timeline, because custodians need paperwork and several real deadlines arrive sooner than most beneficiaries expect. The deadlines that matter depend on the type of beneficiary and whether the original owner had reached their required beginning date.

Three dates are particularly important:

• December 31 of the year of death: If the owner had reached their required beginning date, any remaining RMD for that year generally must be distributed.
• December 31 of the year after death: For multiple beneficiaries, establishing separate inherited accounts by this date can affect how required minimum distributions are calculated for each beneficiary.
• December 31 of the tenth year after death: Most non-eligible designated beneficiaries must empty the account by the end of the calendar year containing the tenth anniversary of the owner’s death. Our inherited IRA rules guide explains who qualifies for an exception.

Starting early gives you time to confirm which deadlines apply before a deadline forces a decision.

Step 1: Confirm the Beneficiary Designation and Your Category

The beneficiary form on file with the custodian generally controls who inherits an IRA, even when a will says something different. Ask for a copy of the designation, and check every account separately, since an old IRA, a 401(k), and a newer account can each name different people.

Your category determines the rules that follow. A surviving spouse, a minor child of the owner, a disabled or chronically ill beneficiary, and someone not more than 10 years younger than the owner each have more flexibility. Adult children and most other beneficiaries fall under the 10-year rule. A trust or estate named as beneficiary follows a different set of rules.

How to Open an Inherited IRA Step by Step

Once you know you’re the beneficiary, the process at most custodians follows the same order.

1. Notify the custodian. Call the firm that holds the account and ask for the beneficiary claim packet. Many custodians route these requests through an estate services team.
2. Send the required documents. This usually means a certified copy of the death certificate, the beneficiary claim form, and your identification. Requirements vary, so ask for the full checklist.
3. Choose where the account will live. You can open the inherited IRA at the same custodian or move it to one you prefer. Any move should be handled as a direct trustee-to-trustee transfer.
4. Confirm the account is titled as an inherited IRA. The title should show the original owner and you as beneficiary.
5. Name your own beneficiary. If you skip this, the custodian’s default terms apply, which may not match your wishes.
6. Set the investments and a withdrawal plan before you take distributions.

Why Titling and Direct Transfers Matter

A non-spouse beneficiary can’t roll an inherited IRA into their own IRA, and the 60-day rollover available for other retirement distributions doesn’t apply. If the custodian sends a check payable to you, the distribution is generally taxable to you, and you can’t put the money back into an inherited IRA as a rollover.

The account title should include the original owner’s name and your name as beneficiary. A typical format reads “Jane Doe (deceased) IRA FBO John Doe, beneficiary,” though custodians word it differently. The appropriate approach is a direct transfer, where the old custodian sends the money straight to the new one and you never receive it.

A surviving spouse has an extra option. You can generally roll the account into your own IRA and treat it as yours, or keep it as an inherited IRA. The choice can affect when distributions are required and how the account is treated for tax purposes.

Take Care of the Year-of-Death RMD First

If the original owner had reached their required beginning date and hadn’t withdrawn the full RMD for the year they died, the remaining amount generally must be distributed by December 31 of that year. The beneficiary is typically responsible for ensuring the remaining amount is distributed, and it’s generally taxable to whoever receives it.

Ask the custodian how much was taken before the owner’s death. This distribution is separate from the beneficiary’s post-death distribution requirements. A missed amount can trigger an excise tax, although relief may be available if you correct the shortfall and request a waiver.

Splitting an Inherited IRA Among Multiple Beneficiaries

When several people inherit the same IRA, the custodian may leave it as one account unless you ask for separate ones. Establishing separate inherited IRAs by December 31 of the year after death can affect how each beneficiary’s required minimum distributions are calculated. It also lets each person choose investments and withdrawal timing independently, which matters when beneficiaries have different incomes and goals.

Inherited 401(k)s, Roth IRAs, and Trust Accounts

The steps above apply to most inherited retirement accounts, with a few differences:

• Inherited 401(k): A non-spouse beneficiary can generally move the balance to an inherited IRA through a direct transfer. Compare the plan’s costs and investment options first, since some plans offer low-cost funds that are hard to match.
• Inherited Roth IRA: The opening process is similar, and the 10-year rule generally applies to a non-eligible designated beneficiary. Unlike an inherited traditional IRA, an inherited Roth IRA is treated as though the original owner died before their required beginning date, so the beneficiary generally isn’t subject to annual RMDs during the 10-year period. Most distributions are tax-free, but earnings can be taxable if the Roth IRA had not satisfied the applicable five-year rule.
• Accounts payable to a trust or estate: These follow different rules, and the way the trust is written can change the timeline. Involve the estate attorney and your CPA before anything moves.

Review the Investments Before Making Changes

Inherited IRAs often hold investments that matched the original owner’s goals instead of yours, such as a concentrated stock position, high-cost funds, an annuity, or an allocation set decades ago. Inherited IRAs don’t receive a step-up in basis, but trades inside the account generally don’t create a tax bill. For a traditional inherited IRA, taxable income generally arises when money is distributed, subject to the account’s basis and other applicable rules.

If the IRA is part of a larger inheritance, the other assets deserve their own review. Inherited brokerage accounts do receive a step-up in basis, which changes the math on selling. Our guide on what to do with an inheritance covers how the pieces fit together, and our investment philosophy explains how we approach the portfolio itself.

Plan Withdrawals Before the Deadline Plans for You

Beneficiaries generally don’t owe the 10% early withdrawal tax on inherited IRA distributions, regardless of age. Withdrawals from a traditional inherited IRA are generally taxed as ordinary income, so the timing can affect your tax brackets.

Beneficiaries subject to the 10-year rule generally must empty the account by December 31 of the year containing the 10th anniversary of the owner’s death. If the owner died on or after their required beginning date, annual distributions are generally also required during the 10-year period. If the owner died before their required beginning date, a non-eligible designated beneficiary generally does not have annual RMDs during the 10-year period, but the entire account must still be distributed by the end of year ten.

We walk through a dollar example in our guide to inherited IRA withdrawal strategy.

Mistakes That Create Avoidable Taxes

Most problems when learning how to open an inherited IRA come from a short list of errors:

• Depositing or cashing a check made payable to you
• Rolling a non-spouse inherited IRA into your own IRA
• Missing the year-of-death RMD when one is required
• Missing required annual distributions when the owner died after their required beginning date
• Waiting until year ten to withdraw without considering the tax consequences
• Leaving the beneficiary line blank on the new inherited IRA

Getting Help With an Inherited IRA

Opening the account takes a few weeks of paperwork. The decisions behind it, how to invest the money and when to withdraw it, affect your taxes for up to ten years. Because opening and managing inherited accounts is a core part of what we do, we can handle the process with you and coordinate with your CPA and the estate attorney.

You can schedule a conversation, review our inherited IRA financial planning services, or learn more about inheritance and sudden wealth planning. If the IRA is one piece of a larger inheritance, our inheritance and sudden wealth planning page covers the full picture.

Key Takeaways

• There’s no 90-day legal deadline for how to open an inherited IRA, but the applicable deadlines depend on the beneficiary’s status and the original owner’s circumstances.
• The beneficiary form on file generally controls who inherits, even when a will says something different.
• Non-spouse beneficiaries can’t roll an inherited IRA into their own IRA and should use a direct trustee-to-trustee transfer.
• A check made payable to you is generally a taxable distribution that can’t be put back into an inherited IRA as a rollover.
• If the original owner had reached their required beginning date, any remaining year-of-death RMD generally must be distributed by December 31 of that year.
• Multiple beneficiaries can generally establish separate inherited IRAs, and doing so by December 31 of the year after death can affect how RMDs are calculated.
• Most non-eligible designated beneficiaries must empty the account by December 31 of the year containing the tenth anniversary of the owner’s death.
• Beneficiaries generally don’t owe the 10% early withdrawal tax, but traditional inherited IRA withdrawals are generally taxed as ordinary income.

About the Author

Gabriel Motta, CFP®, MBA, is the founder and principal of Inclinevest Wealth Management, a fee-only fiduciary retirement financial advisor and financial planner. He works with high-net-worth pre-retirees and retirees nationwide, with particular experience serving aerospace and defense professionals. As a retirement planner and wealth manager, Gabriel helps clients navigate retirement income planning, Social Security strategy, tax-efficient withdrawals, and equity compensation. Gabriel is a NAPFA and XY Planning Network member. Learn more about Gabriel and Inclinevest Wealth Management (https://www.inclinevest.com/about-inclinevest-denver/) or schedule a conversation (https://calendly.com/inclinevest/inclinevest).

Sources

1. Internal Revenue Service, “Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs),” IRS.gov, https://www.irs.gov/publications/p590b
2. Internal Revenue Service, “Retirement Topics: Beneficiary,” IRS.gov, https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
3. Internal Revenue Service, Final Regulations on Required Minimum Distributions (T.D. 10001, July 2024)
4. U.S. Congress, Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019
5. U.S. Congress, SECURE 2.0 Act of 2022

This article is for general informational and educational purposes only. It isn’t personalized investment, tax, or legal advice, and it shouldn’t be relied on as a substitute for guidance specific to your situation. Inclinevest LLC is a registered investment adviser. Registration doesn’t imply any level of skill or training. Please consult a qualified professional before making decisions about your own financial circumstances.