Can a beneficiary withdraw from an IRA without penalty?

Beneficiaries of the IRA may be able to withdraw from the account without penalty depending on who is inheriting and how they transfer the funds. Generally, spouses who inherit an IRA have more flexibility than non-spouse beneficiaries if they are the account's sole beneficiary. Distributions from an inherited IRA may be required.

When can a beneficiary receive an IRA if the owner dies?

When a beneficiary becomes entitled to an IRA from an account owner who died before he or she was required to begin taking RMDs (April 1st of the year following the year in which the owner reached RMD age), the beneficiary can choose one of two methods of distribution: over their lifetime or within five years (the "five-year rule").

What happens if a beneficiary inherited an IRA?

Note that the old rules that allowed a beneficiary who inherited an IRA to stretch out withdrawals over decades in some cases, are still in place if the person who owned the account died before Jan. 1, 2020. Some beneficiaries of IRA accounts whose owners died in 2020 or later are exempted from the 10-year rule.