Inheriting a retirement account can be a financial blessing, but if you don’t follow the IRS rules, it can quickly turn into a tax nightmare. Hi, I’m Hunter Brockway, founder of Boca Retirement Strategies. We help people retire successfully, stress-free, with more money and fewer taxes.

Inheriting an IRA from a non-spouse is already challenging, given the circumstances. The IRS doesn’t make it easy, and mistakes can cost you thousands in taxes or lost growth. So how do you avoid the biggest pitfalls when inheriting an IRA from someone who was not your spouse? Here are five critical steps to ensure you maximize your inheritance while avoiding unnecessary taxes and penalties.

Step One: Pause and Plan
Don’t rush into a distribution. The biggest mistake is taking an immediate withdrawal without understanding the tax consequences. What to do instead? Inherited IRAs are not the same as your own IRA. They must be handled differently. You cannot roll them into your own IRA, make contributions, or convert them into an inherited Roth IRA. Before taking action, consult with a qualified financial advisor to determine the best tax-efficient strategy.

Step Two: Properly Title and Set Up an Inherited IRA
The mistake here would be not setting up the inherited IRA correctly, leading to IRS penalties or forced distributions. What to do instead, open a properly titled inherited IRA. For example, ‘John Doe deceased IRA for the benefit of Jane Doe beneficiary.’ If switching financial institutions, ensure the transfer is done as a direct trustee to trustee transfer and avoid immediate taxation.

Step Three: Split the IRA if There Are Multiple Beneficiaries
Mistake here, keeping multiple beneficiaries in one inherited IRA, which can force everyone into the same distribution schedule. What to do instead, divide the account into separate inherited IRAs by December 31st of the year after the original owner’s death. Why? Each beneficiary gets the maximum payout period allowed instead of being forced to take distributions based on the oldest beneficiary’s life expectancy.

Step Four: Understand Required Minimum Distributions
The mistake here is assuming you don’t need to take RMDs. Even Roth IRAs are subject to distribution rules. What to do instead? Most non-spouse beneficiaries under the SECURE Act must withdraw the account within 10 years. With traditional IRAs, withdrawals are taxable as ordinary income. With Roth IRAs, withdrawals are tax-free but must still be distributed within the 10-year period. The exception to the rule, some eligible designated beneficiaries like minor children, disabled individuals or those close in age to the deceased may qualify for stretched RMDs. Trusts may face expedited distribution rules.

Step Five: Watch Deadlines and Check for Tax-Free Money
Mistake? Missing IRS deadlines and losing out on tax-free withdrawals. What to do instead? Pay attention to the key deadlines. The inherited IRA must be properly titled by December 31st of the year following the owner’s death. Check tax records. If the original IRA contained non-deducted contributions, some of your withdrawals may be taxable free. Name your own beneficiaries on the inherited IRA. If you pass away without one, the funds could end up in probate.

Inheriting an IRA doesn’t have to be overwhelming. Take your time, follow the right steps, and avoid costly mistakes. Take action. If you just inherited an IRA, don’t make a costly mistake. Schedule a call with us at BocaRetirement.com. Head to our free assessment tab. From there, you can click on the calendar, pick a date that works for you, hit schedule, and we’ll call you at that date and time.