inherited IRA

An individual retirement account that is passed on to an heir through a beneficiary designation. The assets held within the deceased’s IRA must be transferred into a new inherited IRA held in the beneficiary’s name. Investments held within an inherited IRA grow tax-free. Taxes are levied at the time that withdrawals are made from an inherited IRA, generally at ordinary income tax rates. Individual designated beneficiaries must adhere to one of two deadlines for when they must take distributions beyond the deceased’s required minimum distribution (RMD) for the year of death.