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Inheritance tax

my mother in law just passed away. My wife is the primary beneficiary on her IRA. Myself and our 3 kids (all in 20s and 30s) are secondary beneficiaries. If my wife and myself disclaim the IRA I assume we avoid any tax liabilities and our kids would pay tax on the RMD (split in thirds) as income on their individual returns. Is that correct?

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3 Replies
Employee Tax Expert

Inheritance tax

Hi! Great question!  If you and your wife disclaim the inheritance of the IRA, it is as if you were never named as beneficiaries. The inheritance and all responsibilities, tax & RMD, would fall to the remaining beneficiaries. That is, your children would bear all the taxes and required RMD's.  The tax due for each inheritor would be determined by the amount of withdrawal taken in each year until the IRA is exhausted. 


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Inheritance tax

Is that correct?


Yes, but you need to be cautious with disclaimers as they need to be executed properly.


See https://www.irs.gov/pub/irs-wd/0839030.pdf


As a result, you might want to consult a local tax professional.

Employee Tax Expert

Inheritance tax

Hi Glquinn!

The answer is different depending on if it is a traditional IRA or Roth IRA.

As a general statement, withdrawals taken from a Traditional IRA that has been inherited are only subject to the early withdrawal penalty if the funds from the deceased's IRA are transferred directly into the beneficiary's own IRA. Early withdrawal penalties never apply to lump sum distributions or withdrawals from "Inherited IRAs." Therefore, since you created a beneficiary IRA the withdrawals will not be subject to the early withdrawal penalty. In your case, being a non-spouse beneficiary you cannot roll an inherited IRA into your own IRA anyway.


As a general statement, subject to the eligible withdrawal options and depending on the beneficiary type,  taking withdrawals more than the RMD required from the ROTH IRA first, is a personal preference. From a tax liability standpoint, you might consider taking ROTH distributions first, but from an investment/growth standpoint, leaving as much money in the ROTH to grow tax-free for as many years as possible might be a better choice, especially if you choose the 10 year rule.


Distribution of the account is mandatory for non-spouse designated beneficiaries of inherited ROTH IRAs  and you have 10 years to draw down the entire amount. If you are eligible and chose to draw it out over your life expectancy, distributions must begin no later than 12/31 of the year following the year of death. These distributions are spread over the beneficiary's single life expectancy, a table that has been updated recently. Here is the IRS site for the tables. Eligible designated beneficiaries have two options.


Whether or not the distributions from the ROTH IRA are taxable depend on the following:

  • Distribution of all amounts except earnings: Tax Free and penalty free. These amounts are distributed first.
  • Distributions of earnings.  Penalty free. Taxable only if it has been less than 5-years since the Roth IRA owner funded the Roth IRA. You count the 5-year period from the owner- the beneficiary inherits the 5-year start date from the Roth IRA owner.

In regard to the IRA withdrawal rules:

  • for a designated beneficiary, the 10-year rule applies. Distributions are optional until the 10th year, when the entire balance must be distributed.
  • for an eligible designated beneficiary, you can choose between
    1. the 10-year rule and
    2. taking distributions over your life expectancy, beginning by 12/31 of the year that follows the year in which the owner died.

You would be an eligible designated beneficiary, if at the time of the Roth IRA owner’s death, you are: Disabled, chronically ill, or not more than 10-years younger than the Roth IRA owner.


You will receive a Form 5498 at the end of every year from the custodian of the IRAs with the end of year balance to apply the life expectancy table factor to calculate the required minimum distribution. This is the official balance used by the tables to calculate the correct minimum distribution. Even though the custodian provides the Form 5498 and also may calculate the RMD, it is still your responsibility to make the correct and timely distribution each year.

Here are some useful links on the subject:



here is some info on the Roth IRA which is more likely to not be taxed:

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