Your Traditional IRA Legacy: What Your Loved Ones Need to Know
When you think about your IRA, you probably think about retirement. But what happens to that account after you’re gone is just as important. For many families, an inherited IRA becomes a meaningful financial gift. But it also comes with rules—some of which can be confusing, and costly if misunderstood. Taking a little time now to plan ahead can help your loved ones keep more of what you intended to pass on.
The Hidden Complexity of Inherited IRAs
Here’s where things can get tricky. When someone inherits an IRA, they don’t just receive the account—they also inherit a set of rules called Required Minimum Distributions (RMDs). These rules determine how quickly the money must be withdrawn by your beneficiaries. The timeline depends on who you name as the beneficiary is and, in some cases, when you pass away.
There are three general categories of beneficiaries:
- Eligible designated beneficiaries – such as a spouse, minor child, or someone who is disabled, chronically ill, or close in age to the original owner
- Other individual beneficiaries – such as most adult children or friends
- Non-individual beneficiaries – such as an estate or charity
Based on the beneficiary type, one of the following payout rules will apply:
- 5-Year Rule
Typically applies to non-individual beneficiaries when the Traditional IRA owner passed away before starting required distributions. The entire IRA balance must be withdrawn by the end of the fifth year following the IRA owner’s death. - 10-Year Rule
Applies to most individual beneficiaries. The full balance must be distributed by the end of the tenth year following the IRA owner’s death. In some cases, annual withdrawals may also be required during that period. - Life Expectancy Rule (“Stretch”)
Available to eligible designated beneficiaries. This allows the IRA to be distributed gradually over the beneficiary’s lifetime, potentially extending tax deferral.
Special note: Minor children of the IRA owner may use the life expectancy rule until reaching adulthood (age 21), at which point the 10-year rule begins — requiring the IRA to be fully emptied in the year the child turns age 31.
Without a clear understanding, beneficiaries may take withdrawals too quickly (and pay more taxes than necessary) or not take them at all (and face penalties).
Why This Matters More Than Ever1
We’re in the middle of one of the largest wealth transfers in history. Did you know that:
- An estimated $124 trillion is expected to pass between generations by 2048
- About $105 trillion will go to heirs
At the same time:
- Roughly 1 in 3 U.S. households own a Traditional IRA
- And trillions of dollars are currently held in these accounts
That means there’s a good chance your IRA will play a role in your family’s future.
You Can Make a Difference
A significant amount of wealth will pass between generations in the coming years, and inherited IRAs will play an important role for many families. Understanding the rules—especially IRS requirements for inherited IRA withdrawals—can help your beneficiaries avoid penalties and make informed decisions.
It’s also important to review your IRA beneficiary designations regularly. Making sure they still match your wishes, and discussing them with your loved ones, can help protect the legacy you want to leave.
Learn more by reading Inherited Traditional IRA Distribution Options For Individuals.
For additional information, visit Retirement Topics – Required Minimum Distributions (RMDs) on the Internal Revenue Service website.2
Frequently Asked Questions
What is a Traditional IRA?
A Traditional Individual Retirement Account (“IRA”) is a tax-advantaged savings vehicle that you establish independently to support your long-term retirement planning. Think of a Traditional IRAs as your personal retirement savings plan.
What are the tax advantages of a Traditional IRA?
Contributions to a Traditional IRA may be made with pre-tax dollars or may be tax-deductible, and the account grows tax-deferred. This means that taxes apply only when distributions are taken. However, withdrawals made too early or too late may result in penalty taxes.
Am I required to take distributions from my Traditional IRA?
Yes. Both Traditional IRA owners and Inherited Traditional IRA beneficiaries are subject to the Required Minimum Distribution (“RMD”) rules. These rules state that you must begin taking annual distributions from the IRA when you reach a certain date – referred to as the Required Beginning Date.
As the IRA owner, what is my Required Beginning Date?
If you are the Traditional IRA owner, your required beginning date (“RBD”) is determined based on the year you were born. The table below provides you with your RMD age:
| Date of Birth | RMD Age |
| Before July 1, 1949 | 70½ |
| On or after July 1, 1949 to December 31, 1950 | 72 |
| On or after July 1, 1951 to December 31, 1959 | 73 |
| On or after July 1, 1960 | 75 |
You must receive your initial RMD no later than April 1 of the year following the year you attain your RMD age.
As an IRA beneficiary, what is my Required Beginning Date?
If you are the beneficiary of a Traditional Inherited IRA, determining your RBD is more complicated, and is based on the answer to the following questions:
- When did the Traditional IRA owner pass away?
- What is your beneficiary classification?
Beneficiary classifications include the IRA owner’s spouse or minor child(ren), disabled or chronically ill individuals, individuals who are not more than 10 years younger than the owner, any other individual, and non-individuals such as a charity or your estate. Consider contacting a financial professional to discuss what RMD rules may apply to you based on the answers to the above questions.
What should I do next?
A few simple steps can make a big difference.
- Review Your IRA Beneficiary Designations. Make sure your IRA beneficiaries still reflect your wishes—and your current life situation.
- Have the Conversation. Don’t assume your beneficiaries will “figure it out.” A quick conversation now can help prevent confusion later.
- Consider Special Situations
– If you’ve named minor children, a trust may be worth discussing
– If a beneficiary has a disability, planning ahead can help protect important benefits - Talk to a Financial Professional. RMD rules can be complex. Getting guidance can help ensure your strategy aligns with both your goals and your beneficiaries’ needs. If Page 5 of 6 you don’t expect to need all of your IRA assets during retirement, you may also want to explore ways to reposition those dollars to create a more predictable and tax-efficient legacy, such as with a life insurance policy.
Contact your National Life agent today for more information on what RMD rules may apply to you. Your IRA isn’t just about your retirement—it’s part of the legacy you leave behind. By taking time now to review your beneficiaries and understand how the rules work, you can help ensure your loved ones receive not just wealth—but clarity, confidence, and guidance.
Pam Cathlina
Pam Cathlina is a Senior Attorney* in the Advanced Sales Department at National Life Group. She received her Bachelor of Arts degree in Psychology from the University of Wisconsin – Madison, and her Juris Doctor degree from Saint Louis University School of Law. She is a member of the State Bar of Wisconsin. She is a Chartered Life Underwriter (CLU®) and holds FINRA Series 7 and 24 licenses.
Pam has over 30 years of experience in the financial services industry. Prior to joining National Life, she worked at Northwestern Mutual Life Insurance Company, where she served in a variety of roles over a 25-year timespan. Before Northwestern Mutual, Pam spent two years at a Big 5 accounting firm as an employee benefits tax consultant.
In her position at National Life Group, Pam consults with field partners, agents, and associates on matters pertaining to estate and business planning, including executive benefit planning.
* Not practicing law on behalf of National Life Group, National Life Insurance Company, or Life Insurance Company of the Southwest.