Inherited IRA Rules: What Beneficiaries Need to Know
Inherited IRA rules became significantly more complex after the SECURE Act. Depending on your relationship to the original owner and when they passed away, you may face different withdrawal deadlines, tax consequences, and RMD requirements.
Getting these rules wrong can lead to unnecessary taxes or IRS penalties.
Key Takeaways
Most inherited IRAs now follow a 10-year distribution rule
Some beneficiaries must also take annual RMDs during those 10 years
Spouses and certain eligible beneficiaries may have more flexible options
Traditional IRA withdrawals are generally taxable as ordinary income
Missing a required distribution can trigger IRS penalties
Most of the major inherited IRA changes came from the SECURE Act of 2019, with additional guidance and penalty updates under SECURE Act 2.0.
Do You Have to Empty an Inherited IRA Within 10 Years?
For most non-spouse beneficiaries who inherit an IRA from someone who died in 2020 or later, the account must generally be fully distributed by December 31st of the 10th year after death.
Whether annual withdrawals are also required during those 10 years depends on the original owner’s situation.
If the Original Owner Died After Reaching Their Required Beginning Date
You will generally:
Need to take annual required minimum distributions (RMDs) during years 1–9
Need to fully empty the account by the end of year 10
If the Original Owner Died Before Reaching Their Required Beginning Date
You generally:
Do not need annual RMDs during the 10-year period
Still must fully distribute the account by the end of year 10
Example
For example, if you inherit a traditional IRA in 2026 from a parent who had already begun taking RMDs, you may need annual withdrawals beginning in 2027, with the remaining balance fully distributed by December 31st of the 10th year after death.
Who Is Exempt From the 10-Year Rule?
Certain beneficiaries qualify as Eligible Designated Beneficiaries (EDBs) and may be allowed to use life-expectancy-based withdrawals instead of the standard 10-year rule.
These beneficiaries include:
Surviving spouses
Minor children of the account owner*
Disabled individuals
Chronically ill individuals
Beneficiaries who are less than 10 years younger than the original owner
*Once a minor child reaches the age of majority, the 10-year rule generally begins at that point.
Special Rules for Surviving Spouses
Spouses typically have the most flexibility when inheriting an IRA.
Potential options may include:
Rolling the inherited IRA into their own IRA
Remaining a beneficiary and using life expectancy for distributions
Delaying RMDs until the year the deceased spouse would have reached their required beginning age
The best option often depends on:
The surviving spouse’s age
Income needs
Tax brackets
Long-term retirement planning goals
Inherited IRAs also generally must remain titled as inherited accounts and cannot simply be combined with your own IRA unless you are the surviving spouse.
How Are Inherited IRA Withdrawals Taxed?
Traditional IRAs
Distributions from inherited traditional IRAs are generally taxed as ordinary income.
Because large withdrawals can push income into higher tax brackets, distribution timing can have a meaningful tax impact.
Roth IRAs
Inherited Roth IRA distributions are generally tax-free.
However, if the Roth IRA had not yet satisfied the 5-year holding period before the original owner’s death, a portion of investment earnings may be taxable.
Penalties for Missing Required Distributions
Under SECURE Act 2.0:
The penalty for missing an RMD is generally 25% of the amount not withdrawn
The penalty may be reduced to 10% if corrected within the IRS correction window
Even with reduced penalties, mistakes involving inherited IRA distributions can still be costly.
Planning Strategies for Inherited IRAs
Depending on your financial situation, thoughtful distribution planning may help reduce taxes and improve long-term outcomes.
Important planning considerations may include:
Coordinating IRA withdrawals with other income sources
Spreading distributions over multiple years to help manage tax brackets
Being strategic with inherited Roth IRA timing
Confirming whether annual RMDs apply in your situation
Reviewing beneficiary classifications carefully before taking withdrawals
Common Questions About Inherited IRAs
Do inherited IRAs require annual RMDs?
Sometimes. Annual RMDs may apply if the original owner died after reaching their required beginning date.Can a spouse roll an inherited IRA into their own IRA?
Yes. Surviving spouses generally have the ability to treat the IRA as their own, subject to applicable rules and planning considerations.
Are inherited Roth IRAs taxable?
Inherited Roth IRAs are often tax-free, though taxation can apply in certain situations involving the 5-year holding period.
What happens if you miss an inherited IRA RMD?
The IRS may assess a penalty based on the amount that should have been withdrawn.
Bottom Line
Most inherited IRAs now must be emptied within 10 years, but the details matter. Misunderstanding whether annual RMDs apply — or whether you qualify for an exception — can result in avoidable taxes or penalties.
Before taking distributions, it’s often wise to review your options to ensure your strategy aligns with current IRS rules and your long-term financial goals.
