How to Set Up an Inherited IRA: Titling, Transfers, and RMDs

To set up an inherited IRA, you open a new account with a custodian, title it to show both the deceased owner and yourself as beneficiary, and have the funds moved directly from the original custodian through a trustee-to-trustee transfer. Getting the titling or the transfer method wrong can turn the entire balance into a taxable distribution in a single year, so the mechanics matter as much as the paperwork.

Gather Your Documents First

No custodian will open the account until you can prove two things: the original owner has died, and you are entitled to the assets.

The foundational document is a certified copy of the death certificate. A photocopy will not do. If more than one financial institution held the deceased’s accounts, order several certified copies at the start. They typically run between $5 and $34 depending on the state.

You also need the original owner’s full legal name, Social Security number, and dates of birth and death. Old account statements or the estate executor are the usual sources. For yourself, have your Social Security or taxpayer ID number, current address, and date of birth ready.

The custodian will hand you either a Beneficiary Claim Form or an IRA Adoption Agreement. On it, you select the account type (Traditional or Roth, matching the original), identify your beneficiary category, and make a distribution election. Some institutions also want proof of your beneficiary designation, which the executor or current custodian can pull from the original account records.

One document surprises most people: the Medallion Signature Guarantee. It is not a notary stamp. A Medallion Guarantee confirms your identity, your legal capacity to sign, and your authority to transact on the securities involved, and many custodians require one when investment assets like mutual funds or stocks are moving. Banks and credit unions that participate in a Medallion program provide the stamp, but not every branch offers it. Call ahead.

Know Which Beneficiary Category You Fall Into

Your relationship to the deceased decides which account options you have, so identify your category before you fill out the paperwork.

Surviving Spouse

A surviving spouse has the widest set of choices.¹ The most common move is to roll the inherited funds into your own IRA. Once that happens, the account is treated as if it were always yours: standard contribution and distribution rules apply, and required minimum distributions do not start until you reach age 73.² The tradeoff is that the standard 10% early withdrawal penalty now applies if you take money out before 59½.³

If you are under 59½ and may need the money, keeping the assets in an inherited IRA is often smarter. Distributions from an inherited IRA are exempt from the 10% early withdrawal penalty regardless of your age.³ A spouse who keeps the inherited structure can also delay distributions until the year the original owner would have turned 73.¹

Eligible Designated Beneficiary

A narrow group of non-spouse beneficiaries gets treatment nearly as favorable. The tax code defines an eligible designated beneficiary as someone in one of these categories:⁴

A minor child of the deceased, until they turn 21. From that birthday, the 10-year clock starts.
A disabled individual under the IRS definition in Section 72(m)(7).
A chronically ill individual certified as unable to perform daily living activities for an indefinite period.
A person not more than 10 years younger than the deceased, such as a sibling close in age.

Eligible designated beneficiaries can stretch distributions over their own life expectancy instead of being forced into the 10-year rule.¹ None of them, however, can roll the inherited funds into their own IRA. That option belongs only to a surviving spouse.

Standard Designated Beneficiary

Everyone else named individually falls here: adult children, grandchildren, friends, most other individuals. The account must be emptied by December 31 of the tenth year following the year of the original owner’s death.² You cannot roll the funds into your own retirement account.⁵

One wrinkle affects how you plan those ten years. If the original owner died on or after the date they were required to start their own distributions, you must take annual withdrawals during each of those years based on your life expectancy. Waiting until year ten and taking one lump sum is not permitted. If the owner died before that required beginning date, annual withdrawals during the 10-year window are not mandatory, though you can take money out at any time.

No Named Beneficiary

If the IRA passed to the estate rather than to a named individual, the SECURE Act’s 10-year framework does not apply, because it only covers individual beneficiaries. Older rules govern instead: if the owner died before their required beginning date, the account must be fully distributed within five years.¹ If they died after that date, distributions can be spread over the owner’s remaining life expectancy.

Title the Account Correctly

This is where the biggest, most expensive mistake happens. An inherited IRA cannot be titled in your name alone. If it is, the IRS treats the entire balance as a distribution to you, and the whole amount becomes taxable as ordinary income in that year.

The title must reference both the deceased owner and you as beneficiary. A typical format reads: “John Smith, deceased, for the benefit of Jane Smith, Beneficiary.” The requirement holds whether the account stays with the original custodian or moves to a new one. When the assets land at a new firm, the receiving institution must replicate the inherited designation on all records. The application will have a dedicated field for this. If you see incorrect titling after the transfer, contact the custodian immediately, before any distributions are processed. Custodians use the title to apply the correct tax reporting codes on Form 1099-R, so accuracy here heads off problems at tax time.

Move the Money by Trustee-to-Trustee Transfer

The only safe way to move inherited IRA assets is a trustee-to-trustee transfer, where the receiving institution requests the funds directly from the current custodian.⁶ The money never touches your hands. Non-spouse beneficiaries are legally barred from performing the standard 60-day rollover.⁵ If a check is issued to you personally, the IRS treats it as a full distribution and taxes the entire amount.

To start the transfer, send your completed beneficiary claim form, the certified death certificate, and proof of your beneficiary designation to the new custodian. Many firms accept these through a secure upload portal; some still want physical mail. The current custodian reviews the paperwork, which usually takes anywhere from a few business days to a couple of weeks. You should get confirmation once the assets land.

Once the transfer completes, check three things: that the title is correct, that the full balance arrived, and that all statements show a direct transfer rather than a distribution. Individual stocks or certain mutual funds sometimes need extra steps to move in kind. Keep every confirmation statement. Those records prove the assets moved through a direct transfer if the IRS ever asks.

Handle the Year-of-Death RMD Before It Passes

One deadline sneaks up on new beneficiaries at exactly the moment they are focused on setting up the account. If the original owner had already reached the age at which required minimum distributions began, and had not taken their full distribution for the year they died, someone has to take it.¹ That falls to the beneficiary, or to the estate if there is no named beneficiary. The amount owed is whatever the original owner was required to withdraw but did not.

This distribution must come out by December 31 of the year the owner died. The fact that the account is still being retitled or transferred does not extend the deadline. Coordinate with the current custodian early so this distribution gets processed on time, even if the transfer to a new institution has not finished. Missing an RMD triggers an excise tax of 25% of the amount you should have withdrawn, dropping to 10% if you correct the shortfall within two years.²

Name Your Own Successor Beneficiary While You Are There

Do this step during setup, not later. If you die before the inherited account is fully distributed, the successor beneficiary you name inherits whatever remains. Most custodians include a beneficiary designation section right on the inherited IRA application. If yours does not, ask for a separate beneficiary designation form before you leave the paperwork behind.

Leaving an inherited IRA without a named successor means the assets pass through your estate, which pulls them into the more restrictive distribution rules and potentially into probate.

What Comes Next

Once the account is open, correctly titled, and funded through a direct transfer, the setup work is done. From there, the questions shift to how and when to take distributions and how they will be taxed: Traditional inherited IRA withdrawals are taxed as ordinary income in the year received, and Roth inherited IRA withdrawals are generally tax-free if the original Roth was open at least five years before death.¹ Your custodian will send a Form 1099-R each January reporting the prior year’s distributions, coded to indicate a death-related payout.⁷ Plan the timing of your withdrawals with the 10-year deadline and your own tax bracket in mind.

1
Internal Revenue Service. Retirement Topics – Beneficiary
2
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
3
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
4
Legal Information Institute. 26 USC 401(a)(9) – Definition: Eligible Designated Beneficiary
5
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
6
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
7
Internal Revenue Service. Instructions for Forms 1099-R and 5498