Inherited IRAs are Tricky: What You Need to Know

A man who inherited a $25,000 IRA from his elderly uncle doesn’t need the money and would like to pass it on to his son. He questions whether or not he can give the inherited IRA to his son, as described in the article “You’ve inherited an IRA. What comes next and what can you do with it?” from Florida Today.

For starters, no IRA or other retirement account may be gifted to anyone. The money can be taken out of the uncle’s IRA, accepted as the man's inherited IRA, or disclaimed. If he decides to disclaim it, the IRA will pass as if the man were deceased when the uncle died.

Disclaiming means the IRA will go to whoever was named as a secondary beneficiary in the uncle’s beneficiary documentation. If there was no secondary beneficiary, the account would go into the uncle's probate estate, and the state probate laws would determine what happens to the IRA.

For the man to get the funds in the IRA to his son, he’d have to take the money out of the uncle’s IRA now, or from the Inherited IRA. Either way, the man will pay the income taxes on the distribution. To get a rough estimate of his taxes for 2026, he can use his 2026 tax rate and add $25,000 to his taxable income.

This may push him into a higher tax bracket or trigger additional costs, so it may be wise to take the funds out over multiple tax years. If that’s the case, it may make more sense for the man to inherit the IRA and take the funds as required.

In this example, a non-spouse beneficiary (the nephew) must empty the Inherited IRA (and pay the required taxes) by the end of 2035. Because the uncle was 79 and past his Required Beginning Date, he was subject to Required Minimum Distributions (RMDs), so the Inherited IRA will also require RMDs.

Every year, the man inheriting the IRA can take as much as he wants from the account, as long as it is at least as much as the RMD for the year. The RMDs are based on the balance at the end of each year and an age-based IRA factor.

As an alternative, the man can decide to give his son $25,000 from a different account, avoiding income taxes from the IRA. However, remember the 2026 gift tax exclusion is $19,000, so it may make more sense to gift the son $19,000 one year and the remaining $6,000 the following year to avoid having to file a Federal Gift Tax Return.

Any person may gift as much as they want, up to $19,000 per donee per year, without gift tax. If the son is married, he can gift $19,000 to him and $6,000 to his spouse. If the man is married filing jointly, he and his spouse may each gift the son up to $19,000 in one year.

The rules regarding Inherited IRAs are very complex to navigate, so speak with your estate planning attorney about the best way to be generous without incurring unnecessary taxes.

Reference: Florida Today (May 17, 2026) “You’ve inherited an IRA. What comes next and what can you do with it?”