IRA Beneficiaries: 5 Takeaways
If you read this post and think, “No one told me that about IRAs before,” you are not alone. Keep in mind that the following five takeaways all apply after your death. What you read here may cause you to consider changing your IRA beneficiary designations. If so, good news! You can do that (in most instances, you do this by contacting the IRA management company).
This information is for general educational purposes only and is not legal, tax, financial, or retirement-planning advice. Also, this is based on early-2026 laws and information, which are subject to change. For advice about your specific IRAs, please talk to a retirement planning, tax, or financial expert.
First major takeaway: Your IRA distributions to beneficiaries are not subject to probate, unless an exception applies, as explained below. Your Will does not control who receives your IRA assets. If you want 50% of your IRA to go to your friend Francis and 50% to your cousin Cameron, you must name Francis and Cameron as the 50/50 IRA beneficiaries. If the information in your Will says something different, it won’t matter as the IRA beneficiary designation(s) win. Exceptions apply if you (a) name your Estate as your IRA beneficiary, (b) do not name any IRA beneficiaries, (c) none of your named IRA beneficiaries outlived you, or (d) you have a living IRA beneficiary, but they disclaim (refuse to inherit the IRA).
Second major takeaway: The way your IRA is distributed and taxed after your death depends on several things. These include the type of IRA, your age at death, who you name as beneficiaries, and whether a trust is involved.
Third takeaway: There are three main types of IRA beneficiaries, and the rules for each differ.
Spouse Beneficiary: If your spouse inherits your IRA, they can treat it as their own, roll it into their own IRA, or stay as the beneficiary of your IRA.
Non-Spouse Beneficiary: If someone other than your spouse inherits your IRA, such as a child, relative, or friend, they cannot treat the IRA as their own. How they receive distributions depends on other details, explained below.
Trust, Estate, or Entity Beneficiary: If you name a trust, your estate, or an entity as your IRA beneficiary, the rules are more complex.
For trusts or estates, how distributions are handled depends on the terms of the trust or how the estate is administered.
For entities such as charities, religious groups, schools, or businesses, the rules depend on whether you started taking distributions before your death and on the type of organization you named.
Fourth takeaway: There are five main ways IRA beneficiaries can take distributions. The options depend on the type of beneficiary and, in some cases, other details.
Inherited IRA: Beneficiaries can transfer the assets into an Inherited IRA, allowing them to take distributions over time.
Five-Year Rule: If a trust, estate, or entity is the beneficiary, the entire IRA usually must be withdrawn by the end of the fifth year after your death. There is an exception for see-through trusts, explained below.
Ten-Year Rule: Non-spouse beneficiaries must withdraw the full IRA balance by the end of the tenth year after your death. For minor children, the ten-year period starts when they turn 18 (in North Carolina, the age of majority varies by state).
Life Expectancy Method: Some beneficiaries, such as spouses, disabled individuals, or people close in age to you, can take distributions based on their own life expectancy. This can help spread taxes over a longer period.
Lump-Sum Distribution: Beneficiaries can withdraw the entire IRA at once, but this usually results in a much larger tax bill.
Fifth takeaway: There are (almost*) always taxes. The tax rate depends on who inherits the IRA. *Distributions from a Roth IRA are tax-free if you owned the account for at least five years before you died.
Spouse and Non-Spouse: Distributions are taxed as regular income to whoever inherits the IRA.
Estate: If the estate keeps the IRA distributions, they are taxed at the fiduciary tax rate, which is 10% to 37% for 2025. If the estate pays all of the IRA benefits to the estate beneficiaries, those distributions are taxed at the same rate as the beneficiaries' other ordinary income.
Trust Beneficiaries:
See-Through Trust: A see-through trust distributes 100% of IRA distributions to the Trust beneficiaries each year (with no carry-over). Trust beneficiaries' distributions are taxed at the same rate as other ordinary income.
Non-See-Through Trust: A non-see-through trust does not distribute all IRA distributions to the trust beneficiaries each year. The IRA distributions to the trust are taxed at the fiduciary rate, which for 2025 is 10% to 37%.
Entities: If a tax-exempt entity, such as a charity or non-profit, inherits the IRA, the distributions are not taxed. If the entity is not tax-exempt, the distributions are taxed at the business income tax rate.
Conclusion: Understanding these five takeaways can help you make informed decisions when naming (or updating) your IRA beneficiaries and planning for their distributions. This post contains general information. For advice about your own situation, talk with a qualified financial advisor or tax professional.
Disclaimer: this article was written by Attorney Heather Hazelwood of Hazelwood Law PLLC dba Ampersand Law. This article does not contain legal advice and is not a substitute for obtaining legal counsel. It is offered for general information purposes only.