Many people assume that if they name someone as the beneficiary of an IRA, the inheritance process will work the same way regardless of who that beneficiary is. In reality, inherited IRA rules can vary significantly depending on the relationship between the account owner and the beneficiary.
For unmarried partners, inherited IRA rules can differ substantially from those that apply to surviving spouses. Those differences can affect everything from distribution requirements to tax treatment after a partner’s death. Understanding these rules ahead of time can help couples make more informed decisions and potentially avoid unnecessary tax consequences or administrative surprises for the surviving partner.
📌 Learn more about Financial Planning for Unmarried Couples
Does a Will Override an IRA Beneficiary Designation?
When someone passes away, IRAs typically pass according to the beneficiary designation on file with the custodian, rather than the instructions in a will.
For unmarried couples, this makes beneficiary designations especially important.
If the beneficiary form is outdated or no beneficiary is named, the account may pass to family members or through the estate instead of to the surviving partner, regardless of how long the couple has been together.
That’s why reviewing IRA beneficiaries regularly matters, especially after:
- moving in together
- purchasing a home jointly
- opening new investment accounts
- major relationship changes
- divorce from a prior spouse
Consider an IRA owner who names a sibling as beneficiary years before entering a long-term relationship. If that designation is never updated, the account may still pass to the sibling, even if the owner's will states that their partner should inherit their assets.
What Makes Inherited IRA Rules Different for Unmarried Partners
Under IRS rules, unmarried partners who inherit IRAs are treated as non-spouse beneficiaries.
That distinction is important because surviving spouses often have options that unmarried partners do not. For example, in many cases, a spouse can roll inherited IRA assets into their own IRA and continue treating the account as their own retirement account.
An unmarried partner generally cannot do that. Instead, the account typically must be titled as an inherited IRA and is subject to the rules that apply to non-spouse beneficiaries.
Unlike a surviving spouse, an unmarried partner generally cannot:
- roll the inherited IRA into their own IRA
- continue making contributions to the account
- delay distributions in the same manner available to some surviving spouses
For many people, this is one of the most surprising aspects of the inherited IRA rules. Even if a couple has built a life together, the IRS does not treat unmarried partners the same as surviving spouses when it comes to inherited retirement accounts.
📌 Learn more about Retirement Planning for Unmarried Couples
How the 10-Year Rule Can Affect Taxes on an Inherited IRA
One of the biggest inherited IRA changes in recent years came from the SECURE Act of 2019. Today, most unmarried partners who inherit an IRA are subject to the SECURE Act’s 10-year distribution rule, meaning the account generally must be fully distributed within 10 years of the original owner’s death.
For non-spouse beneficiaries who inherit a traditional IRA, distributions from the account are generally taxed as ordinary income. Because the entire account must be distributed within a 10-year period, the timing of withdrawals can significantly impact tax planning. For example, waiting until the final year to withdraw the entire account can create a large one-time tax burden for some beneficiaries.
This can be especially relevant for beneficiaries who inherit an IRA during their highest-earning years. Adding inherited IRA distributions on top of an existing salary, bonuses, or investment income may push taxable income into a higher tax bracket than expected.
Because every beneficiary's financial situation is different, distribution planning can be an important part of managing the tax impact of an inherited IRA. Some beneficiaries wait until year 10 to withdraw the full balance, while others take distributions gradually. Depending on factors such as income and tax brackets, spreading distributions across multiple years may result in a more manageable tax outcome.
📌 Learn more: Does Connecticut Tax IRA Distributions?
How Traditional and Roth Inherited IRAs Differ for Unmarried Partners
The tax treatment of an inherited IRA depends largely on whether the account is a traditional IRA or a Roth IRA.
With an inherited traditional IRA, distributions are generally taxable as ordinary income. As a result, the timing of withdrawals can be an important consideration, particularly for beneficiaries inheriting larger accounts or receiving other significant sources of income.
Inherited Roth IRAs are often more favorable from a tax perspective because qualified distributions are generally tax-free. However, non-spouse beneficiaries must still comply with inherited IRA distribution requirements, including the 10-year rule that applies in many situations.
Because Roth IRA distributions are typically tax-free, beneficiaries may have greater flexibility in deciding when to take withdrawals during the 10-year distribution period.
📌 Learn more: Traditional IRA vs. Roth IRA: What’s the Difference?
Key Inherited IRA Considerations for Unmarried Partners
Because inherited IRA rules differ for spouses and non-spouse beneficiaries, there are several areas that deserve careful attention.
- Beneficiary designations typically control who inherits an IRA. An up-to-date beneficiary form is often more important than instructions contained in a will.
- Unmarried partners are generally treated as non-spouse beneficiaries. This can limit some of the options that are available to surviving spouses.
- The 10-year distribution rule may apply. Distribution timing can have a meaningful impact on taxes, particularly for inherited traditional IRAs.
- Traditional and Roth inherited IRAs are taxed differently. Understanding the type of account inherited can help beneficiaries evaluate their options.
- Regular beneficiary reviews matter. Life changes, new relationships, and major financial events can all be reasons to revisit beneficiary designations.
Retirement Planning for Unmarried Couples
For unmarried couples, inherited IRA planning often requires more coordination because the rules for non-spouse beneficiaries differ from those that apply to surviving spouses. A well-thought-out beneficiary and distribution strategy can help retirement assets continue to support the surviving partner as the couple intended.
If you and your partner would like to discuss how inherited IRA rules may affect your retirement plan, we’re here to help. You can schedule a complimentary introductory meeting with our team in Glastonbury or Wilton, Connecticut to review your beneficiary designations, retirement accounts, and overall financial plan.
Have a quick question instead? Send us a note.
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Kelsey Conklin is a CERTIFIED FINANCIAL PLANNER® professional and Certified Divorce Financial Analyst® professional who helps individuals and families plan for their financial future. Based in Glastonbury and Wilton, CT, she also specializes in financial planning for women, guiding her clients through divorce, widowhood, career transitions, caregiving responsibilities, retirement planning, investing, and managing longevity risks. As a female financial advisor, Kelsey is passionate about financial empowerment for women and provides personalized financial strategies designed to help women take control of their wealth with clarity. Whether you’re navigating major life changes or planning for retirement, she is committed to providing guidance tailored to your goals. Schedule a complimentary Women and Wealth introductory meeting with Kelsey and start building a financial plan designed for you.
This information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete, it is not a statement of all available data necessary for making an investment decision and it does not constitute a recommendation. RMD's are generally subject to federal income tax and may be subject to state taxes. Consult your tax advisor to assess your situation. Any opinions are those of the author, and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.
Contributions to a traditional IRA may be tax-deductible depending on the taxpayer’s income, tax-filing status, and other factors. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty. Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. 401(k) plans are long-term retirement savings vehicles. Withdrawal of pre-tax contributions and/or earnings will be subject to ordinary income tax and, if taken prior to age 59 1/2, may be subject to a 10% federal tax penalty.