Discover the ins and outs of what needs to be done when you inherit an IRA.
Q: What happens if an individual retirement account (IRA) owner who is older than 70½ years dies without having taken a distribution for that year? Is the heir required to take a distribution by December 31?
A: If you are past age 70½ and die before taking the current year's withdrawal, your IRA beneficiary must take a distribution by the end of that year. The distribution is based on your life expectancy and should be reported as ordinary income on your heir's own tax return. Most custodians require that the beneficiary set up an inherited IRA account and move the assets into it before taking the current year's withdrawal.