An IRA BDA, or Beneficiary Distribution Account, is the separate account a financial institution opens in your name to hold retirement assets you inherit when the original IRA owner dies. It keeps the inherited money apart from any IRA you already own, and it runs on its own set of withdrawal deadlines and tax rules. Getting those rules wrong is expensive: missing a required withdrawal can trigger a federal penalty of up to 25 percent of the amount you should have taken out.
How the Account Is Set Up
When you are named as an IRA beneficiary, the custodian moves the assets into a new account titled in a specific format that includes the deceased owner’s name, a notation that the owner is deceased, and language showing the account is held for your benefit. The naming convention lets the IRS and the custodian track the chain of ownership and keep inherited money separate from your personal retirement savings.
A BDA is not simply a renamed version of the original IRA. You cannot make new contributions to it. If you are anyone other than the surviving spouse, you cannot roll the funds into your own IRA.1Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts Federal law bars non-spouse beneficiaries from treating inherited IRA distributions as rollover-eligible. If you take the money out, it is taxable income, and you cannot put it back.
Moving a BDA to Another Custodian
You can move an inherited IRA between financial institutions through a trustee-to-trustee transfer, where the money goes directly from one custodian to the other and never passes through your hands.2Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions No taxes are withheld and the transfer is not a distribution. What non-spouse beneficiaries cannot do is the 60-day indirect rollover. If a check made out to you leaves an inherited IRA, that money is a taxable distribution with no way to reverse it.3Internal Revenue Service. Retirement Plans FAQs Relating to Waivers of the 60-Day Rollover Requirement
The Surviving Spouse Exception
A surviving spouse has options no one else gets. You can roll the inherited IRA into your own IRA and treat it as though it were always yours, so it follows your own required distribution schedule based on your age. Or you can keep it as an inherited BDA and take distributions over your life expectancy. If the original owner died before their required distributions had to start, you can delay withdrawals until the year the deceased owner would have reached that age.4Internal Revenue Service. Retirement Topics – Beneficiary
Which Beneficiary Category You Fall Into
Your withdrawal rules depend almost entirely on which of three categories the SECURE Act of 2019 and SECURE 2.0 put you in.
Eligible Designated Beneficiaries
This group gets the most flexibility. You qualify if you are:
- The surviving spouse of the account owner
- A minor child of the account owner (not a grandchild)
- Disabled or chronically ill
- Not more than ten years younger than the deceased owner
Eligible designated beneficiaries can stretch withdrawals over their own life expectancy instead of emptying the account within ten years.4Internal Revenue Service. Retirement Topics – Beneficiary
Designated Beneficiaries
Most adult children, grandchildren, siblings, friends, and other individuals who do not fit the eligible group land here. The account must be fully emptied by December 31 of the tenth year after the owner’s death.5Office of the Law Revision Counsel. 26 U.S. Code 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
Non-Designated Beneficiaries
When an estate, a charity, or a trust that does not meet the IRS “see-through” requirements inherits the IRA, the beneficiary is non-designated and faces the shortest timeline. Trusts can sometimes qualify their individual beneficiaries for the ten-year rule or life expectancy method if the trust meets a set of IRS requirements, but that is a planning question worth walking through with a tax professional.6Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
How Long You Have to Empty the Account
Internal Revenue Code Section 401(a)(9) sets the required timelines.5Office of the Law Revision Counsel. 26 U.S. Code 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans Which one applies to you depends on your category and on whether the original owner had reached the age when their own required withdrawals had to begin, known as the required beginning date.
The Ten-Year Rule
Most non-spouse individual beneficiaries have to drain the account by December 31 of the tenth year after the owner’s death. For years, it was unclear whether annual withdrawals were also required during those ten years. The IRS resolved the question in final regulations effective for 2025. If the original owner died on or after their required beginning date, you must take annual minimum withdrawals during years one through nine and empty the account by the end of year ten.7Internal Revenue Service. Notice 2024-35 – Certain Required Minimum Distributions If the owner died before their required beginning date, no annual withdrawals are required. You just need to have the account at zero by the ten-year deadline.
The Life Expectancy Method
Eligible designated beneficiaries can spread withdrawals over their own life expectancy using IRS mortality tables. Annual withdrawals are mandatory under this method, and you cannot skip a year. For a minor child of the account owner, the life expectancy method runs only until the child turns 21, and then the ten-year clock starts.4Internal Revenue Service. Retirement Topics – Beneficiary
The Five-Year Rule
Non-designated beneficiaries such as estates, charities, and non-qualifying trusts must empty the account within five years when the owner died before the required beginning date. No withdrawals are required during those five years, but the balance must reach zero by December 31 of the fifth year after death.4Internal Revenue Service. Retirement Topics – Beneficiary
The Required Beginning Date
The required beginning date is the age at which the original owner would have had to start their own withdrawals. Under current law that age is 73 for people born between 1951 and 1959. Starting in 2033 it rises to 75 for those born in 1960 or later.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Whether the owner died before or after reaching that age changes which schedule applies to you.
How Withdrawals Are Taxed
Money taken out of an inherited traditional IRA is taxed as ordinary income in the year you receive it. For 2026, federal income tax rates run from 10 percent to 37 percent depending on your total taxable income.9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 While the money stays inside the BDA, gains grow tax-deferred and you owe nothing until you withdraw.6Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
One useful feature of an inherited IRA: the 10 percent early withdrawal penalty does not apply. Distributions made to a beneficiary after the account owner’s death are exempt.10Office of the Law Revision Counsel. 26 U.S. Code 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts A 30-year-old who inherits a traditional IRA still owes ordinary income tax on withdrawals but not the extra 10 percent.
If the Inherited Account Is a Roth
Inherited Roth IRAs follow the same distribution schedules. What changes is the tax treatment. Withdrawals of the original owner’s contributions are always tax-free. Withdrawals of earnings are also tax-free in most cases, though earnings can be taxable if the Roth account was less than five years old when you take the money out.4Internal Revenue Service. Retirement Topics – Beneficiary That five-year clock starts on January 1 of the year the original owner made their first Roth contribution, not when you inherit. Because withdrawals are usually tax-free, beneficiaries under the ten-year rule often benefit from waiting as long as possible and letting the balance keep growing.
The Penalty for Missing a Required Withdrawal
If you fail to take a required distribution, the federal excise tax is 25 percent of the shortfall between what you should have withdrawn and what you actually took out.8Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs Correcting the miss within two years drops the penalty to 10 percent.
You report the penalty and can request a waiver on IRS Form 5329. If the shortfall was a reasonable error and you are fixing it, for example by withdrawing the missed amount as soon as you catch the mistake, the IRS can waive the penalty entirely. To request the waiver, complete the relevant lines on Form 5329, write “RC” and the shortfall amount on the dotted line next to line 54, and attach a written explanation of what went wrong and how you corrected it.11Internal Revenue Service. Instructions for Form 5329 The IRS reviews each request individually.
If You Die Before the Account Is Empty
Anyone you name as beneficiary of your inherited IRA is a successor beneficiary, and they do not get a fresh set of options. They cannot use their own life expectancy. They must empty the remaining balance within ten years of your death.6Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs) If you were an eligible designated beneficiary taking life expectancy payments, the ten-year period for your successors starts on December 31 of the year containing the tenth anniversary of your death. Naming a successor matters. Without one, the remaining balance passes through your estate, which can put it on the more aggressive five-year timeline.