Can You Transfer an IRA to a Family Member? Gifts and Heirs

Federal tax law does not allow transferring an IRA to a family member while you are alive. These accounts must be held for the exclusive benefit of one individual, and re-titling one to a child, sibling, or parent triggers immediate tax on the full balance as if you had cashed the account out yourself. The only lifetime exception is a transfer to a spouse or former spouse under a divorce decree. Everything else runs through the beneficiary designation on file with your IRA custodian, which controls who inherits the account after you die.

Why a Lifetime Transfer Doesn’t Work

An IRA is a trust created for one person. You can’t change ownership the way you might retitle a bank account or add someone to a car. If you try, the IRS treats the entire balance as distributed to you on the date of the change. The full amount lands in your taxable income for that year at ordinary rates.¹

For a sizable account, that deemed distribution can be financially devastating. A $400,000 IRA collapsed into a single year’s income pushes much of the balance into the top federal brackets. If you’re under age 59½, add a 10% early withdrawal penalty on the taxable amount.²

Whatever cash survives the tax hit becomes a personal asset. Handing it to a relative is a gift. For 2026, gifts to any one person over $19,000 in a calendar year require a gift tax return on Form 709, and amounts above the lifetime exemption can owe gift tax.³ Every layer of this route costs money. The tax code simply does not let a living owner pass an IRA to someone else intact.

The One Lifetime Exception: Divorce

Federal law permits one narrow exception. IRA assets moved from one spouse to the other under a divorce decree or written separation agreement are not treated as taxable distributions.⁴ The receiving spouse takes over the account as if it had always been theirs, and the tax-deferred status stays intact.

The mechanics matter. The court order should identify the IRA by account number and state the dollar amount or percentage being transferred. The custodian then moves the assets directly from one account to the other. If the original owner pulls the money out first and hands cash to the ex-spouse, the IRS may treat that as a regular distribution, and the original owner owes the tax. A direct trustee-to-trustee transfer avoids the problem.

Naming Family Members as Beneficiaries

The real way to pass an IRA to family is the beneficiary designation. This is the form on file with your custodian that names who inherits the account when you die. It overrides your will and usually keeps the account out of probate entirely. That makes it one of the most powerful estate documents you will ever sign, and it is the one people most often forget to update after a divorce, a birth, or a death in the family.

To complete a designation, you need each beneficiary’s full legal name, Social Security number, and date of birth. You will also choose how a deceased beneficiary’s share is handled. Per stirpes means if a named beneficiary dies before you, that share drops down to their own children. Per capita means only beneficiaries alive at your death share the account, and a deceased beneficiary’s portion is split among the survivors instead of going to their descendants.

Name both primary and contingent beneficiaries. Contingent beneficiaries inherit only if every primary beneficiary has died, cannot be found, or declines the inheritance. Without a contingent named, and if your primaries are gone, the account defaults to your estate. That means probate and distribution under state intestacy rules rather than your preferences.

File the designation directly with the financial institution, keep a confirmed copy, and review it every few years or after any major life event.

What a Surviving Spouse Can Do Differently

A surviving spouse has options no other heir gets. The biggest one is rolling the inherited IRA into their own IRA and treating it as if they had always owned it.⁵ Federal law specifically excludes surviving spouses from the definition of someone holding an “inherited” account, so the standard rollover rules apply.

The rollover is often the right choice for a surviving spouse who doesn’t need the money soon. Once the assets sit in the spouse’s own IRA, required minimum distributions don’t start until that spouse reaches age 73, regardless of how old the deceased spouse was.⁶ That can mean years of additional tax-deferred growth.

There’s a catch. If the surviving spouse is under 59½ and rolls the money into their own IRA, any withdrawal triggers the standard 10% early withdrawal penalty.⁷ A younger surviving spouse who needs access to the money is often better off keeping it in an inherited IRA, because non-spouse beneficiaries (and spouses who choose the inherited-IRA route) can take distributions at any age without the 10% penalty. The choice comes down to whether you need the cash now or later.

How a Non-Spouse Heir Claims the Account

When the original owner dies, the named beneficiary notifies the IRA custodian and submits a certified copy of the death certificate. Once the custodian verifies identity against the designation on file, the heir opens a new account titled as an inherited IRA (sometimes called a beneficiary IRA). The assets move by direct trustee-to-trustee transfer, which preserves the tax-advantaged status of the money.

The inherited IRA has to stay separate from the beneficiary’s own retirement accounts. You can’t combine inherited funds with your personal IRA contributions, and you can’t add new contributions to an inherited IRA. Those restrictions matter later, both for tax planning and for creditor exposure.

The 10-Year Rule and Who Is Exempt

Before 2020, non-spouse beneficiaries could stretch distributions over their own life expectancy, sometimes for decades. The SECURE Act ended that for most heirs. Now the majority of non-spouse beneficiaries must empty the entire inherited account by the end of the tenth year following the owner’s death.⁸

A smaller group, called eligible designated beneficiaries, can still stretch distributions over their life expectancy. The IRS defines this group as:⁸

Surviving spouse of the deceased account holder
Minor child of the deceased account holder (not grandchildren or other minors), until they reach the age of majority, at which point the 10-year clock begins
Disabled or chronically ill individual
Individual not more than 10 years younger than the deceased account holder

Everyone else, including adult children, siblings, and friends, falls under the 10-year rule. One wrinkle trips people up: if the original owner had already reached their required beginning date for RMDs (currently age 73) before dying, the beneficiary must take annual minimum distributions during the 10-year window, not just empty the account by year ten. The annual amounts are based on the beneficiary’s life expectancy, and the whole balance still has to be out by the end of year ten.

Missing a required distribution triggers an excise tax of 25% on the shortfall.⁹ The penalty drops to 10% if you catch and correct the mistake within two years.⁶ Automatic distributions or a calendar reminder avoid the whole problem.

What the Heir Will Owe in Tax

Inheriting an IRA doesn’t trigger an immediate tax bill, but the distributions from it usually do. The treatment depends on whether the account is a traditional or Roth IRA.

Traditional IRA Distributions

If the original owner funded the IRA entirely with deductible pre-tax contributions, every dollar you withdraw is fully taxable as ordinary income.⁷ There is no capital gains rate on this money. A $50,000 distribution stacks on top of your other income and is taxed at whatever bracket that pushes you into.

If the original owner made some nondeductible after-tax contributions, those created a cost basis in the account. The portion of each distribution representing that basis comes out tax-free, and the rest is taxable.⁷ You’ll file Form 8606 to calculate the split, and you keep this basis tracking separate from any traditional IRAs you own personally.

Because the 10-year rule forces the account empty on a schedule, the planning question for most heirs is whether to spread withdrawals across all ten years to avoid spiking a single year’s bracket, or accelerate withdrawals in years when other income is low. With a large balance, the choice moves real money.

Inherited Roth IRA Distributions

Roth IRAs are friendlier to heirs. Withdrawals of the original contributions are always tax-free. Earnings are also tax-free if the Roth was open for at least five years before the owner died.⁸ If the account is newer than five years, earnings (not contributions) can be subject to income tax when withdrawn. The 10-year rule still applies, so the account must be emptied within a decade, but the distributions themselves are generally tax-free.

Inherited IRAs Have Almost No Creditor Protection

Most heirs don’t think about this until it’s too late. Inherited IRAs have almost no protection from creditors under federal law. In 2014, the Supreme Court ruled unanimously in Clark v. Rameker that inherited IRAs are not “retirement funds” under the Bankruptcy Code’s exemption.¹⁰ The Court’s reasoning was that unlike a regular IRA, the holder of an inherited IRA can’t add money, must take distributions regardless of age, and can withdraw the whole balance at any time without penalty. Those features make it accessible cash, not a retirement nest egg.

If you’re being sued, going through bankruptcy, or facing a judgment, the money in your inherited IRA may be fair game for creditors. A handful of states have their own protections for inherited IRAs, but most don’t. If you’re inheriting a significant balance and have any creditor exposure, an estate planning attorney can walk through protective options before you claim the account.

Refusing the Inheritance

A named beneficiary can legally refuse an IRA inheritance through a qualified disclaimer. This can make sense if accepting would push you into a much higher bracket, create creditor exposure, or if you would rather the assets flow to the next person in line, such as your own children listed as contingent beneficiaries.

Federal rules require the disclaimer to be in writing and delivered to the IRA custodian within nine months of the original owner’s death.¹¹ You cannot have accepted any benefit from the account before disclaiming it, so you can’t take a distribution and then refuse the rest. The disclaimer is irrevocable, and you cannot direct where the disclaimed assets go. They pass according to the beneficiary designation (to the contingent beneficiary) or, if none is named, to the estate.

For beneficiaries under 21, the nine-month clock does not start until they turn 21, and actions a custodian takes on their behalf before that birthday don’t count as acceptance.¹¹ It’s a niche tool, but a useful one when the contingent beneficiary is in a lower bracket or has stronger creditor protection.

1
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts – Section: Tax Treatment of Distributions
2
Office of the Law Revision Counsel. 26 USC 72 – Annuities, Certain Proceeds of Endowment and Life Insurance Contracts – Section: 10-Percent Additional Tax on Early Distributions
3
Internal Revenue Service. Whats New – Estate and Gift Tax
4
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts – Section: Transfer of Account Incident to Divorce
5
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts – Section: Rollover Contribution
6
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
7
Internal Revenue Service. Distributions from Individual Retirement Arrangements (IRAs)
8
Internal Revenue Service. Retirement Topics – Beneficiary
9
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
10
Justia Supreme Court. Clark v Rameker, 573 US 122 (2014)
11
eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer