When you inherit an IRA, you have several options for withdrawing money. Some of those options come with big tax bills attached, while others don’t. Kiplinger recently outlined the rules for inherited IRAs, which vary depending on if the beneficiary is a spouse or a non-spouse and whether the IRA is a traditional or a Roth.

Traditional IRAs

With traditional IRAs, you can cash out at any age without being required to pay a penalty. However, you will need to pay taxes on the money in the IRA. If you are a non-spouse beneficiary, you are required either to start taking withdrawals by December 31st of the year after the IRA owner passes away or to withdraw all the money within five years. Once you start taking withdrawals, you need to take minimum distributions from the account based on your life expectancy. The withdrawals are taxable, but the money remaining in the account is allowed to grow tax-deferred.

If you’re a spouse beneficiary of a traditional IRA, you have some additional options. You can roll the money into your own IRA (meaning you don’t have to start taking minimum distributions until you reach age 70.5 but you would be subject to the 10% early withdrawal penalty if you remove money before age 59.5). If the owner of the IRA was 70.5 and had already started taking required monthly withdrawals, then you can continue to take annual withdrawals based on your spouse’s schedule or take withdrawals based on your own life expectancy. 

Roth IRAs

Roth IRAs are inherited tax-free, but you can’t simply leave the money in the account for an unlimited amount of time. If you’re a non-spouse beneficiary, you’ll need to take annual distributions based on your life expectancy, starting the year after the owner died. Or you can withdraw all the money within five years. 

If you’re a spouse beneficiary, you have the option of rolling the Roth into your own Roth account.

To learn more about the life-expectancy schedules for required withdrawals, check out IRS Publication 590, “Individual Retirement Arrangements.”