You’ve just inherited an Individual Retirement Account (IRA) from a loved one in the U.S., and while the asset itself is meaningful, what follows can feel like a maze of tax rules, distribution deadlines, and financial red tape.

If you live abroad, the challenge is even greater. Suddenly, U.S. tax laws collide with foreign reporting rules, and decisions that seem simple, like when or how to withdraw, can trigger unintended tax bills both in the U.S. and your country of residence.

Here’s the good news: with the right understanding and strategy, you can navigate inherited IRAs smoothly, preserve more of what you’ve received, and avoid costly surprises.

In this guide, you will learn what happens when you inherit an IRA, how distributions are taxed, and what U.S. expats, especially those in Israel, need to know. in this position, we’re here to help.

Before we get started, we’ve written these blogs about moving to and living in Israel which you may enjoy.

What to do when you get kicked out of your US brokerage account

Can one use a US Power of Attorney in Israel, (and vice versa)?

Immigrating to Israel

A guide to retiring in Israel

Checklist for moving to Israel

A guide to investing abroad

Israel expat case studies

Social Security for expats

Financial planning for US citizens living abroad

Selling a house in Israel as a US citizen

Why US Expats should look before they leap into a Roth 401k

Compliance with reporting of foreign assets: tips for US expats to avoid stress

What expats need to know about Brokerage Accounts for non-US residents

And now let’s get into the blog!

What Is an IRA?

An Individual Retirement Account (IRA) is a tax-advantaged retirement savings account commonly used in the U.S. There are two main types:

• Traditional IRA – Contributions may be tax-deductible, and distributions are taxed as ordinary income.
• Roth IRA – Contributions are made with after-tax dollars, and qualified withdrawals are tax-free.

During the original owner’s lifetime, the account grows tax-deferred (Traditional) or tax-free (Roth), and funds are withdrawn during retirement. When the account holder passes away, the IRA becomes an inherited IRA and new rules apply.

What Happens When You Inherit an IRA?

As a beneficiary, you don’t take ownership of the IRA, you inherit it under your name, and a new “Inherited IRA” is created. From there, your options depend on two key factors:

• When the original owner died (before or after 2020), and
• Your relationship to the deceased (spouse or non-spouse)

To keep things simple, and since most heirs are non-spouse, we’ll focus on the non-spouse beneficiary rules, which apply to most adult children and extended relatives.

The 10-Year Rule and Distribution Deadlines

If you inherited the IRA before 2020, you may be eligible to take Required Minimum Distributions (RMDs) based on your own life expectancy, often referred to as the “stretch IRA” strategy. This allowed for long-term tax deferral.

However, under the SECURE Act of 2019, for IRAs inherited after January 1, 2020, the rules changed:

• The account must be fully distributed within 10 years.
• If the original owner had already started taking RMDs, you must take annual RMDs based on your age and empty the account within 10 years.
• If the original owner had not yet begun RMDs, you may choose how and when to take withdrawals, but the account still must be emptied by the end of the 10th year.

What about Roth IRAs?

• Roth IRAs also fall under the 10-year rule if inherited after 2020.
• While distributions are generally tax-free, the full account still must be withdrawn within 10 years.

Taxation of Inherited IRAs

Traditional IRA:

• Distributions are taxed as ordinary income in the U.S.
• There are no early withdrawal penalties (regardless of your age).
• Large withdrawals may push you into a higher tax bracket.

Roth IRA:

• Distributions are tax-free in the U.S., provided the account was open for at least 5 years.
• Still subject to the 10-year distribution rule, but no tax owed if conditions are met.

Why You Need a Strategy:

Spreading withdrawals over several years can help minimize your U.S. tax burden. Taking it all at once, especially in year 10, can trigger unnecessary tax exposure.

Special Considerations for U.S. Expats

If you live abroad, inherited IRA distributions can be taxed differently depending on your country of residence. It’s important to coordinate U.S. and local tax treatment to avoid double taxation.

Israel as an Example:

• New immigrants to Israel (olim) benefit from a 10-year tax holiday on foreign income, including IRA distributions.
• During this period, U.S. taxes apply, but Israel does not tax the income.
• After the 10 years, distributions are treated as regular income and taxed in Israel.
• Notably, Section 9G of Israel’s tax code, which provides favorable tax treatment to pensions, does not apply to inherited IRAs, including Roths.

Strategy Tip:

To maximize tax efficiency, expats in Israel should consider distributing the inherited IRA during the 10-year exemption period to avoid Israeli taxation later.

In Conclusion: Plan Early, Withdraw Wisely

Inheriting an IRA comes with more complexity than most people expect, especially when living abroad. Whether it’s timing withdrawals to reduce taxes or understanding local laws in places like Israel, having a plan makes all the difference.

If you’ve inherited an IRA or are about to, feel free to reach out. We work with U.S. expats across Israel, Europe, and beyond to help manage inherited retirement accounts, legally, strategically, and with clarity.

Here at Nardis, we are experienced in these matters , and we are  here to help you make the most of your inheritance with clarity and confidence. Book your complimentary 15 minute consultation today-friendly verification methods, so even if you’re far from home, you can securely manage your accounts.

Disclaimer

Nardis Advisors LLC (“Nardis”) is a Registered Investment Advisory Firm regulated by the U.S Securities and Exchange Commission in accordance and compliance with applicable securities laws and regulations. Registration does not imply a certain level of skill or training. Nardis does not render or offer to render personalized investment advice through this medium. The information provided herein is for informational purposes only and does not constitute financial, investment or legal advice. Investment advice can only be rendered after delivery of the Firm’s disclosure statement (Form ADV Part 2) and execution of an investment advisory agreement between the client and Nardis.