Types of Inherited IRAs

Inherited IRAs have four possible types, as there are two tax-status types and two beneficiary types, each of which determine the treatment they will receive by the IRS and the rules they must follow: Traditional vs Roth, and Spousal vs Non-spousal.

Inherited Traditional IRAs: All pre-tax accounts left to beneficiaries can be rolled into an inherited Traditional IRA. This includes SEP IRAs, Simple IRAs, Rollover IRAs, and Traditional 401(k)s, among others. Owners of an inherited Traditional IRA must include in their gross income any taxable distributions they receive from that IRA. Some inherited accounts have previously been funded with after-tax contributions, which means that a portion of the distribution may be non-taxable.

Inherited Roth IRAs: All Roth type accounts left to beneficiaries can be rolled into an inherited Roth IRA. This includes Roth 401(k)s, Roth 403(b)s, and Roth IRAs, among others. Some pre-tax employer accounts, such as a Traditional 401(k), are able to be rolled over directly into an inherited Roth IRA as a conversion, which would be a taxable event. If those accounts have already been rolled over to an inherited Traditional IRA, conversions are no longer possible because inherited Traditional IRAs are not allowed to be converted to inherited Roth IRAs for non-spouse beneficiaries.

Inherited Traditional IRAs: All pre-tax accounts left to beneficiaries can be rolled into an inherited Traditional IRA. This includes SEP IRAs, Simple IRAs, Rollover IRAs, and Traditional 401(k)s, among others. Owners of an inherited Traditional IRA must include in their gross income any taxable distributions they receive from that IRA. Some inherited accounts have previously been funded with after-tax contributions, which means that a portion of the distribution may be non-taxable.

Inherited Roth IRAs: All Roth type accounts left to beneficiaries can be rolled into an inherited Roth IRA. This includes Roth 401(k)s, Roth 403(b)s, and Roth IRAs, among others. Some pre-tax employer accounts, such as a Traditional 401(k), are able to be rolled over directly into an inherited Roth IRA as a conversion, which would be a taxable event. If those accounts have already been rolled over to an inherited Traditional IRA, conversions are no longer possible because inherited Traditional IRAs are not allowed to be converted to inherited Roth IRAs for non-spouse beneficiaries.