An IRA BDA, or Beneficiary Distribution Account, is the account a financial institution opens to hold retirement money you inherited from someone who died. It keeps the inherited assets separate from any IRA you own yourself, preserves the tax character of the original account (Traditional stays Traditional, Roth stays Roth), and locks the money into a set of distribution deadlines that depend on your relationship to the deceased and when they died. You control how the money is invested, but you cannot add new contributions. The account exists to distribute what the original owner left behind.
How the Account Is Titled and Opened
The IRS requires a specific title on every inherited IRA. It must name the original owner, note that they are deceased, and identify you as the beneficiary. A typical title reads “John Smith, deceased, IRA FBO Jane Smith, beneficiary.” That format keeps the ownership chain visible for tax reporting and prevents the account from being confused with your personal retirement savings.1Internal Revenue Service. Retirement Topics – Beneficiary
To open the BDA, the custodian needs identifying information for both parties: the decedent’s full legal name, date of birth, date of death, and Social Security number, plus your own name, Social Security number, date of birth, address, and government ID. You complete the custodian’s beneficiary claim form and supply a certified death certificate. Mismatched details between the claim form and the custodian’s existing records are the most common reason claims stall.
Once the custodian verifies everything, the balance moves through a trustee-to-trustee transfer directly from the decedent’s account into your new BDA. The money never passes through your hands, so the transfer itself is not a taxable event.2Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
One warning worth taking seriously if you are not the deceased’s spouse: federal law prohibits rolling an inherited IRA into your own IRA. If you take a distribution and try to deposit it into a personal IRA, the transaction does not qualify as a rollover, and the entire amount becomes taxable income for the year. The mistake cannot be undone, so the account has to be set up correctly from the start.3Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
How Long You Have to Empty the Account
Most non-spouse beneficiaries who inherited an IRA after 2019 must withdraw the entire balance by December 31 of the tenth year following the owner’s death. The SECURE Act eliminated the older “stretch IRA” approach that let heirs spread distributions over their own lifetimes.4Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
The deadline is fixed, but the withdrawal pattern inside those ten years depends on when the original owner died relative to their own required beginning date for RMDs.
If the owner died before their required beginning date, you have complete flexibility. You can take nothing for nine years and empty the account in year ten, or spread withdrawals however you like, as long as the balance hits zero on time. Waiting until year ten and pulling everything in one shot is legal, but it usually creates a heavy tax bill.
If the owner died on or after their required beginning date, the rules are stricter. IRS regulations require annual minimum distributions in years one through nine, calculated from life expectancy tables, with the remainder cleared out by the end of year ten. These annual-distribution rules took effect for the 2025 calendar year and apply to IRAs inherited after 2019.5Internal Revenue Service. Notice 2024-35 – Certain Required Minimum Distributions Skipping a required annual withdrawal triggers the same excise tax as missing any other RMD.
Who Gets More Flexibility
Federal law recognizes five categories of “eligible designated beneficiaries” who can stretch distributions over their own life expectancy instead of following the 10-year rule:
- A surviving spouse.
- A minor child of the owner (biological or legally adopted, under age 21). Grandchildren and other minors do not qualify.
- A disabled individual, as defined in IRC Section 72(m)(7).
- A chronically ill individual certified as unable to perform daily living activities for an indefinite and lengthy period.
- Anyone not more than 10 years younger than the deceased owner.
Everyone else, including adult children, grandchildren, and friends, is subject to the 10-year rule.6Office of the Law Revision Counsel. 26 U.S. Code 401(a)(9) – Required Distributions
A minor child of the owner takes distributions based on life expectancy until age 21. Once the child turns 21, the 10-year clock starts, and the remaining balance must be withdrawn within that window.7eCFR. 26 CFR 1.401(a)(9)-5 – Required Minimum Distributions From Defined Contribution Plans
Extra Options for a Surviving Spouse
Spouses have the widest set of choices, and the right one depends on your age, your cash needs, and whether the deceased had already started RMDs. The options are:
- Roll the inherited assets into your own IRA and treat them as if they had always been yours. You take RMDs based on your own age and can keep contributing. This is the common pick for spouses who do not need the money soon.
- Keep the account as an inherited BDA. This can help if you are under 59½ and might need the money before then, since inherited IRA distributions are never subject to the 10% early-withdrawal penalty.
- Delay distributions. If the owner died before their required beginning date, you can wait until the year the deceased would have reached RMD age.
- Take life-expectancy distributions to keep the annual tax hit small.
- Follow the 10-year rule. Some spouses pick this when the balance is modest and they want simplicity.1Internal Revenue Service. Retirement Topics – Beneficiary
How Withdrawals Are Taxed
If the original account was a Traditional IRA, every dollar you withdraw from the BDA is ordinary income in the year you take it. A $10,000 withdrawal at a 22% marginal rate costs roughly $2,200 in federal income tax. When the rules give you flexibility, spreading withdrawals across several tax years can keep you in a lower bracket and reduce the total bill.1Internal Revenue Service. Retirement Topics – Beneficiary
Inherited IRA withdrawals are exempt from the 10% early-withdrawal penalty at any age. That exemption applies regardless of how old you are when you take the money.8Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
If the original account was a Roth IRA, qualified distributions are tax-free, provided the deceased owner’s Roth had been open for at least five years before their death. The clock starts on January 1 of the tax year the owner made their first Roth contribution. When that five-year condition is met, both contributions and earnings come out free of federal income tax. If it is not, withdrawals of contributions are still tax-free, but earnings may be taxed. Even inside a Roth BDA, the 10-year deadline applies, so the account still has to be emptied on schedule. The upside is that the balance can grow tax-free the entire time.1Internal Revenue Service. Retirement Topics – Beneficiary
Your custodian issues a Form 1099-R for each year you take a distribution. Death distributions carry code 4 in box 7, which tells the IRS the early-withdrawal penalty does not apply. You report the taxable portion on your income tax return for the year of the distribution.
What Happens If You Miss a Required Withdrawal
Missing a required distribution triggers a 25% excise tax on the shortfall. A missed $15,000 withdrawal produces $3,750 in penalty on top of the income tax the distribution would have generated.9Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
Fix the shortfall within two years and the penalty drops to 10%. To claim that reduced rate, take the missed amount and file Form 5329 with your tax return for the year the distribution was originally due.4Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
If the miss was an honest mistake, the IRS can waive the penalty entirely. Request the waiver on Form 5329 with a written explanation showing the shortfall was due to reasonable error and that you have corrected it. Enter “RC” on the dotted line next to line 54 along with the amount you want waived. The IRS then grants the waiver or notifies you that tax is owed.10Internal Revenue Service. 2025 Instructions for Form 5329
Naming a Successor Beneficiary
Name a successor beneficiary on your BDA when you open it. If you die before the account is fully distributed, the successor takes what remains, and the timeline they follow depends on your situation. If you were subject to the 10-year rule, the successor inherits whatever time was left on your clock, not a fresh ten years. If you were an eligible designated beneficiary stretching distributions over your life expectancy, the successor gets a new 10-year window measured from your death, though annual minimum distributions may still be required inside it based on your remaining life expectancy.
Without a named successor, the remaining balance typically must be distributed within five years of your death or passes through your estate, which creates unnecessary cost and delay for your heirs.