Introduction to inherited IRAs

Introduction to inherited IRAs

Upon the death of an IRA account holder, the beneficiary must move the assets from the deceased account holder's IRA to an account in their own name. An inherited IRA is one of the options available for the transfer of these assets.

When a designated beneficiary inherits assets, the assets must be withdrawn within 10 years following the death of the original account owner (decedent). The 10 year rule excludes assets inherited by the Eligible Designated Beneficiaries who include:

  • Surviving spouse
  • Minor child of the decedent (assets must be withdrawn within 10 years following age of majority)
  • Disabled or chronically ill individual
  • Individual who is no more than 10 years younger than the decedent

Distributions are required from the inherited IRA (also called a Beneficiary IRA). Timing of the initial payments and required distribution amount depend on the type of inheritor (spouse, non-spouse or entity beneficiary).

Direct clients to IRS publication 590-B and their tax advisor. For information regarding distributions, contributions, and more, refer to Introduction to Roth IRAs and Introduction to traditional IRAs.

Key information related to a Roth inherited IRA and traditional inherited IRA:

EligibilityRoth and traditional inherited IRAs are designed to receive assets from IRAs and Employer Sponsored Plans.

Withdrawal power financial advisor (WPFA)and Withdrawal power financial advisor-custody (WPFA-C)

Account holders may grant trading and disbursement authorization to the investment advisor in the Authorizations section on forms:

  • Limited Power of Attorney (Investment Advisor LPOA)
  • For additional required documentation, see Deceased client with IRA
OptionsIRAs are eligible for covered options and long option strategies.

To add options, account holders must complete and sign the Options Trading and Margin Application. The investment advisor must have option authorization that meets or exceeds the requested account holder option level.
Schwab ACH (MoneyLink®)ACH (MoneyLink) can only move money out of inherited/beneficiary IRAs. Refer to How to establish an ACH profile or complete the IRA Distribution Form.

Can my client make additional contributions to an inherited IRA?
No. Contributions to an inherited IRA are not permitted.

What is Schwab’s policy for naming beneficiaries for inherited IRAs?
Schwab permits individual inherited IRA holders to name other subsequent beneficiaries for the inherited IRAs. Trust, estate or other entity inheritors may not name beneficiaries. Minor inheritors may only name their estate as the beneficiary.

Can non-spouse beneficiaries roll over the assets into an existing IRA?
No. Only spousal beneficiaries can treat inherited IRA assets as their own by transferring the assets into a new or existing traditional, rollover, or Roth IRA.

How can my client take a required minimum distribution (RMD) from an inherited IRA?
Use the Beneficiary RMD Calculator (inherited IRA) to estimate the required distribution. To request a distribution, use the Move Money tool on Schwab Advisor Center. Clients can also initiate distributions directly on Schwab Alliance or complete the IRA Distribution Form.

Can a non-spouse beneficiary leave the assets in the existing IRA instead of opening an inherited IRA?
No. As a non-spouse beneficiary, Schwab requires an inherited IRA must be opened to take possession of the assets.

What happens when SEPs or SIMPLE IRAs are inherited?
The assets are eligible for a beneficiary transfer into a traditional inherited IRA.

Can an inherited IRA be transferred from another firm to Schwab?
Yes. You’ll need the following:

  • An account statement reflecting an inherited IRA registration.
  • A copy of the decedent’s death certificate.
  • A decedent’s IRA beneficiary form. 
  • A Transfer of Account form.

The following are available to assist you:

How to add and update account beneficiaries
How to handle deceased clients’ assets
How to open a custodial IRA
How to open a Roth IRA
How to open an inherited IRA
How to request a retirement distribution
Tax withholding election (TWE) FAQs

To assist in estimating your clients' inherited IRA distribution requirement, access the Beneficiary RMD Calculator (inherited IRA).

Refer to the following forms to manage an inherited IRA:

  • Beneficiary Designation Form (IRA Change Beneficiary / IRA Update Beneficiary)
  • Inherited IRA Account Application for Individual Beneficiary
  • Inherited IRA Account Application for Organization Beneficiary Form
  • Inherited IRA Application for Trust Beneficiary Form
  • Inherited IRA Application for Estate Beneficiary Form
  • IRA Distribution Form
  • Limited Power of Attorney (Investment Advisor LPOA)
  • Options Trading and Margin Application
  • QRP/Keogh Distribution Request Form
  • State Income Tax Withholding Information for Individual Retirement Accounts
  • Tax Withholding Election Form for Individual Retirement Accounts (IRA TWE)
  • Transfer of Account form Instructions (TOA / Account Transfer)
  • Withdrawal Power and Trading Authorization Addendum to Limited Power of Attorney (LPOA)

For more information, see: