What Happens to an IRA Without a Beneficiary?

When an IRA has no beneficiary on file, the account does not simply pass to the next of kin. The custodian looks first at its own account agreement, which usually sends the money to a surviving spouse if there is one and otherwise to the deceased owner’s estate. Once the IRA lands in the estate, it goes through probate, becomes available to pay the owner’s debts, and must be emptied on an accelerated schedule that accelerates the income tax bill. That, in short, is what happens to an IRA without a beneficiary, and every piece of it is avoidable by filing a one-page designation form during life.

What the Custodian Does First

Every IRA custodian has a default beneficiary hierarchy written into the account agreement the owner signed when opening the account. A typical order names the surviving spouse first; if there is no spouse, the account goes to the estate. Some custodians insert children or other relatives into the chain, but many skip straight to the estate. The specific language in the custodial agreement controls.

That default matters because it decides whether the IRA ever touches the probate system. If the agreement points to a living spouse, the spouse can inherit directly and roll the account into their own IRA. If it points to the estate, the rest of this article applies.

The IRA Goes Through Probate

Once the estate is the beneficiary, the custodian will not release the funds until it receives proof that someone has legal authority over the estate. That proof is either Letters Testamentary, if there is a will, or Letters of Administration, if there is not. Getting them means filing a petition in probate court.

Most estates take nine to twelve months to close. Contested or complex ones can run two years or longer. During that time the IRA sits frozen while the court supervises the process. The estate pays court filing fees, publication costs to notify creditors, appraisal fees, and attorney fees. In states that set attorney compensation as a percentage of the gross estate value, the fee on a mid-sized IRA can run into the thousands before anyone inherits anything.

Probate also makes the IRA balance public. The executor files an inventory of estate assets with the court, and anyone can read those filings. A properly designated beneficiary avoids all of this because the IRA transfers privately, outside the court system.¹

Creditors Are Paid Before Heirs

Inside the probate estate, the IRA joins the pool of assets available to satisfy the deceased owner’s debts. Medical bills, credit card balances, taxes owed, and funeral costs get paid before any money reaches the heirs. If liquid assets fall short, the executor may liquidate IRA funds to cover those obligations. An IRA that passes to a named beneficiary generally stays out of reach of the decedent’s creditors because it never becomes estate property.¹

The Distribution Timeline Gets Much Shorter

The most expensive consequence of an IRA paid to an estate is the forced distribution schedule. Under Treasury regulations, an estate is not a “designated beneficiary” because only an individual qualifies for that status.² That classification matters because the SECURE Act’s ten-year rule only reaches individual beneficiaries. An estate follows the older, pre-2020 rules.³

The exact deadline depends on whether the owner had already reached the Required Beginning Date for minimum distributions, which is April 1 of the year after turning 73.⁴

If the owner died before the Required Beginning Date, the estate must empty the account by December 31 of the fifth year after death. No annual withdrawals are required inside that window, but the balance must be zero by the deadline.⁵
If the owner died on or after the Required Beginning Date, distributions continue over the deceased owner’s remaining single life expectancy, recalculated each year. That can stretch longer than five years, but still shorter than what an individual beneficiary would get.⁵

Compare the five-year rule to the alternatives. A surviving spouse named as beneficiary can roll the IRA into their own account and delay distributions until their own Required Beginning Date. A non-spouse individual beneficiary gets a full ten years under the SECURE Act. The estate’s timeline is the least favorable option the tax code offers on an inherited IRA.

Penalty for Missing a Required Withdrawal

Failing to withdraw enough in any given year triggers an excise tax of 25% of the shortfall between the required distribution and the amount actually taken.⁶ The penalty drops to 10% if the shortfall is corrected within two years by withdrawing the missed amount and filing a corrected tax return. The underlying income tax on the distribution still applies either way.

Why the Compressed Schedule Costs So Much

Every dollar distributed from a traditional IRA is taxed as ordinary income, whether it goes to the estate or flows through to heirs. The balance represents Income in Respect of a Decedent: money the owner earned but never paid tax on. It keeps that character after death, so whoever receives it owes income tax at their own marginal rate.⁷

Cramming an entire IRA balance into five tax years instead of spreading it across ten or longer pushes heirs into higher brackets. For 2026, the top federal rate is 37% on income above $640,600 for single filers and $768,700 for married couples filing jointly.⁸ A $500,000 IRA split across five years generates $100,000 of additional taxable income each year. Layered on top of an heir’s regular salary, the bracket creep is real money.

If the estate keeps the distribution rather than passing it through to heirs, the estate pays the income tax. Estate income tax brackets compress much faster than individual brackets, so retaining large distributions inside the estate is usually the more expensive choice.

Federal Estate Tax Rarely Enters the Picture

IRA assets are included in the gross estate for federal estate tax purposes whether or not a beneficiary is named. For 2026, the basic exclusion amount is $15 million per individual, raised under the One, Big, Beautiful Bill signed into law on July 4, 2025.⁹ Only estates above that threshold owe federal estate tax, so the vast majority of families never face it. Estates that do owe both estate tax and income tax on the same IRA funds can deduct the portion of federal estate tax attributable to the distributions through the Income in Respect of a Decedent deduction.⁷

Roth IRAs Are Not Exempt

A Roth IRA without a beneficiary follows the same distribution timeline. An estate inheriting a Roth must still empty the account within five years if the owner died before the Required Beginning Date. The tax treatment is more forgiving: withdrawals of contributions are tax-free, and most withdrawals of earnings are also tax-free. The exception is a Roth account that was less than five years old at the time of death, in which case the earnings portion may be taxable.³

Tax-free treatment softens the blow but does not remove it. A named individual beneficiary would get ten full years to drain the Roth, or longer if a surviving spouse rolls it into their own Roth. Losing five or more years of compounding inside a tax-free account is still a cost, even when no income tax is owed on the distributions.

Filing a Beneficiary Designation Fixes All of This

One form with the IRA custodian prevents every problem above. Name a primary beneficiary and a contingent beneficiary. The contingent inherits if the primary dies before you, which keeps the account from defaulting to the estate through the custodial agreement.

Beneficiary designations override the will. If a will leaves the IRA to a spouse but the custodian’s form still names an ex-spouse, the ex-spouse inherits the account. That mismatch is the most common planning failure and happens routinely after divorce, remarriage, or the death of a previously named beneficiary. Review the form after any major life event and confirm it matches current intentions.

Naming a trust as beneficiary can make sense for minor children, beneficiaries with special needs, or situations calling for control over how the money is distributed. A trust that does not meet the Treasury’s “see-through” requirements is treated the same as an estate for distribution purposes, so the five-year rule applies and the tax advantage of naming individuals disappears.² Trust drafting for retirement accounts is worth an attorney’s time. For most people, though, naming individual primary and contingent beneficiaries directly on the custodian’s form is simpler, cheaper, and produces the best tax outcome.

1
Internal Revenue Service. 5.5.2 Probate Proceedings
2
eCFR. 26 CFR 1.401(a)(9)-4 – Determination of the Designated Beneficiary
3
Internal Revenue Service. Retirement Topics – Beneficiary
4
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
5
Internal Revenue Service. Required Minimum Distributions for IRA Beneficiaries
6
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
7
Internal Revenue Service. Publication 559 (2025), Survivors, Executors, and Administrators
8
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
9
Internal Revenue Service. What’s New – Estate and Gift Tax