Inherited IRA Rules: What Beneficiaries Need to Know About the 10-Year Rule
How Beneficiary Type, Distribution Timing, and Tax Planning Affect an Inherited IRA
Inheriting an IRA can provide meaningful financial support, but it can also create complicated tax and distribution decisions.
Many beneficiaries assume they can leave the inherited account untouched indefinitely. Others believe they must withdraw everything immediately. Neither assumption is necessarily correct.
Under current inherited IRA rules, the appropriate distribution schedule depends on several factors:
- Whether the beneficiary is a spouse or non-spouse
- The beneficiary’s relationship to the account owner
- The original owner’s age at death
- Whether the original owner had begun Required Minimum Distributions
- Whether the account is a traditional or Roth IRA
- When the original owner died
For many non-spouse beneficiaries, the SECURE Act replaced the former lifetime “stretch IRA” with a 10-year distribution period. The IRS has also clarified that certain beneficiaries subject to the 10-year rule must take annual distributions during years one through nine, not merely empty the account by the end of year ten.
What Is an Inherited IRA?
An inherited IRA—sometimes called a beneficiary IRA—is an account established after the original IRA owner dies.
Inherited accounts may include:
- Traditional IRAs
- Roth IRAs
- SEP IRAs
- SIMPLE IRAs
- Retirement-plan assets transferred into a properly titled inherited IRA
The beneficiary generally cannot treat an inherited IRA exactly like an IRA funded with their own contributions. Special rules govern rollovers, contributions, distributions, and account titling. The beneficiary rules should be reviewed alongside the broader rules governing Required Minimum Distributions, including the distribution that may remain due for the original owner’s year of death.
Understanding the 10-Year Rule
For many designated beneficiaries who inherited an IRA from someone who died after 2019, the entire account must be distributed by December 31 of the tenth calendar year following the year of death.
For example, if an IRA owner dies during 2026, a beneficiary subject to the 10-year rule generally must empty the account by December 31, 2036.
The 10-year rule does not always mean the beneficiary may wait until the final year before taking a distribution.
If the original owner died after reaching their Required Minimum Distribution beginning date, many non-spouse beneficiaries must generally:
- Take annual beneficiary distributions during years one through nine.
- Empty the remaining account by the end of year ten.
If the original owner died before reaching the required beginning date, the beneficiary may generally have more flexibility within the 10-year period, although the account must still be emptied by the applicable deadline.
Why Waiting Until Year Ten Can Be Expensive
Even when annual distributions are not required, postponing every withdrawal until the tenth year may not be the most tax-efficient approach.
Suppose a beneficiary inherits a $600,000 traditional IRA and leaves it invested for ten years. If the account grows and the entire balance is withdrawn in the final year, that distribution could:
- Push the beneficiary into a higher federal tax bracket
- Increase state income taxes
- Increase Medicare premiums if the beneficiary is enrolled
- Reduce eligibility for certain deductions or credits
- Create a larger tax bill than a planned series of withdrawals
The deadline establishes when the account must be emptied. It does not automatically determine the best withdrawal schedule.
Spouse Beneficiaries Have More Options
A surviving spouse generally has choices that are unavailable to most other beneficiaries.
Depending on the circumstances, a spouse may be able to:
- Treat the IRA as their own
- Roll the assets into their own IRA
- Remain the beneficiary of the inherited IRA
- Delay certain distributions based on the deceased spouse’s age
- Use beneficiary life-expectancy rules in qualifying situations
The best option may depend on the surviving spouse’s age, income needs, tax bracket, creditor considerations, and whether they are younger or older than the deceased spouse.
A surviving spouse should not automatically complete a rollover before comparing the alternatives.
Eligible Designated Beneficiaries
Certain beneficiaries are classified as eligible designated beneficiaries and may qualify for distributions based on life expectancy rather than the standard 10-year rule.
These generally include:
- A surviving spouse
- The original owner’s minor child, until reaching the applicable age
- A disabled individual
- A chronically ill individual
- Someone not more than ten years younger than the original owner
When a minor child no longer qualifies for the exception, a 10-year period generally begins. The rules are highly fact-specific and should be reviewed before distributions are selected.
Inherited Roth IRA Rules
An inherited Roth IRA can still be subject to beneficiary distribution deadlines.
This surprises many people because Roth IRA owners do not generally have lifetime RMDs. However, beneficiaries ordinarily cannot leave an inherited Roth IRA untouched indefinitely.
Although qualified inherited Roth distributions are generally income-tax-free, the account may still need to be emptied under the 10-year rule.
Because Roth growth may remain tax-free while retained in the account, beneficiaries sometimes prefer delaying withdrawals. However, the applicable deadline and the beneficiary’s broader financial plan should still guide the strategy. The tax treatment of inherited accounts also reinforces the importance of building tax diversification across taxable, tax-deferred, and tax-free assets.
The Year-of-Death Distribution
Another commonly overlooked issue is the original owner’s RMD for the year of death.
If the original owner was required to take an RMD but had not withdrawn the full amount before dying, the remaining year-of-death RMD generally must still be distributed.
This obligation is separate from distributions required from the beneficiary in later years. The IRS regulations address distributions that remain due in the account owner’s or beneficiary’s year of death.
Common Inherited IRA Mistakes
Assuming No Withdrawals Are Required Until Year Ten
This may be incorrect when the original owner died after reaching the required beginning date. Annual distributions may apply during the 10-year period.
Withdrawing the Entire Account Immediately
An immediate lump-sum withdrawal may create unnecessary taxable income. A multi-year strategy may produce a better result.
Missing the Year-of-Death RMD
Beneficiaries should confirm whether the original owner completed the required distribution before death.
Combining the Inherited IRA With Your Own IRA
A non-spouse beneficiary generally cannot combine an inherited IRA with their personal IRA. Correct beneficiary titling is essential.
Naming the Estate as Beneficiary
An estate, trust, or other non-individual beneficiary may be subject to different and potentially less favorable rules.
Ignoring State Taxes
Inherited traditional IRA distributions may also be taxable at the state level, depending on residency and applicable law.
Failing to Coordinate With Other Income
Distributions should be reviewed alongside wages, Social Security, capital gains, Roth conversions, Medicare premiums, and other retirement income.
Creating an Inherited IRA Withdrawal Strategy
A beneficiary subject to the 10-year rule should consider mapping expected income across the entire distribution period.
Potential approaches include:
Equal Annual Withdrawals
Dividing the account roughly across ten years can create more predictable taxable income.
Tax-Bracket Management
A beneficiary may take larger withdrawals during lower-income years and smaller withdrawals during higher-income years, while satisfying any annual minimum requirements.
Early Distributions
Taking more in earlier years may make sense when the beneficiary expects higher earnings, RMDs, or tax rates later.
Delayed Distributions
Deferring larger withdrawals may be appropriate when current income is high and future income is expected to decline.
Coordinating Charitable and Estate Goals
Inherited IRA assets should be considered within the beneficiary’s broader charitable, estate, and investment strategy.
No single distribution pattern is appropriate for every beneficiary. Coordinating beneficiary distributions with a CPA and financial advisor can help close The Retirement Tax Gap before withdrawal deadlines force a decision.
Point Wealth Insight
A beneficiary often focuses on the inheritance amount while overlooking the tax character of the inheritance.
A $500,000 inherited traditional IRA is not equivalent to $500,000 held in a checking account or taxable brokerage account. Traditional IRA withdrawals generally create taxable income, and the account may need to be emptied within a limited period.
The central planning question is not simply, “When must I withdraw the money?”
It is:
“How should these withdrawals be coordinated with the rest of my income over the entire 10-year period?”
This is another area where coordination between a financial advisor and tax professional may help prevent a correct but unnecessarily expensive distribution strategy.
Ask the Advisor
Before taking an inherited IRA distribution, determine:
- Your beneficiary classification
- Whether the original owner had reached the RMD beginning date
- Whether a year-of-death RMD remains
- Whether annual distributions apply
- The final date by which the account must be emptied
- How withdrawals will affect your federal and state taxes
Inherited IRA elections can be difficult or impossible to reverse after assets are distributed or moved incorrectly.
Sources
- Internal Revenue Service, Publication 590-B: Distributions from Individual Retirement Arrangements.
- Internal Revenue Service, Required Minimum Distributions for IRA Beneficiaries.
- Internal Revenue Service, Retirement Plan and IRA Required Minimum Distribution FAQs.
- Internal Revenue Service, final Required Minimum Distribution regulations.