Inherited IRA Rules: What Beneficiaries Must Do, and When

Before 2020, any beneficiary could "stretch" an inherited IRA over their own life expectancy, taking small annual distributions while decades of tax-deferred growth compounded. The SECURE Act ended that for deaths after December 31, 2019. The default now is the 10-year rule: the entire account must be distributed by December 31 of the tenth year after the year of death. A parent who died in March 2026 leaves an IRA that must hit zero by December 31, 2036.

The rule is a deadline, not a schedule. Within the decade you choose when and how much, subject to the annual minimums covered in section 3. That flexibility is the whole planning opportunity: the same $600,000 inherited IRA can cost its beneficiary $140,000 in tax or $220,000 depending purely on which years the money comes out.

Two boundary notes. If you inherited before 2020, you are grandfathered: your life expectancy stretch continues untouched. And if you inherit an already-inherited IRA (a successor beneficiary), you generally get a fresh 10-year clock from the first beneficiary's death, layered on top of any RMD schedule they were on.

The entire rulebook keys off two questions: who inherited, and whether the owner died before or on or after their required beginning date, which is April 1 of the year after they turned 73. Answer both below and the tool shows your deadlines; the full reference table follows.

The four protected categories, called eligible designated beneficiaries, are worth memorizing if you are naming beneficiaries rather than inheriting: surviving spouses, the owner's own minor children (until 21), disabled or chronically ill individuals, and anyone not more than 10 years younger than the owner. Everyone else who is an actual person is a "non-eligible designated beneficiary" on the 10-year clock, and non-person beneficiaries (your estate, most trusts that fail the look-through rules) do even worse.

For years, nobody knew whether the 10-year rule required anything before year ten. The IRS answered in its July 2024 final regulations: if the original owner died on or after their required beginning date, the beneficiary must take a minimum distribution every year in years one through nine, computed on the beneficiary's single life expectancy, with the remainder out by year ten. If the owner died before their required beginning date, no annual minimums apply at all.

Because the proposed version of that rule blindsided beneficiaries, the IRS waived the penalty on missed annual RMDs for 2021 through 2024 across three notices, most recently Notice 2024-35. Enforcement began with the 2025 distribution year. Two things about the waivers trip people up: the skipped years were not added to your deadline (the account must still be empty ten years after death), and the untaken distributions were not forgiven, so the same money now has to come out over fewer remaining years, in bigger, higher-bracket chunks.

The annual minimums themselves are usually modest, a few percent of the balance for a middle-aged beneficiary. Treat them as a floor, not a plan. Taking exactly the minimum for nine years leaves roughly the whole account for year ten, which is precisely the bracket spike section 6 is about.

A surviving spouse can do what no one else can: roll the account into their own IRA (or simply elect to treat it as their own) and proceed as if it had always been theirs, with RMDs starting at their own age 73 and full Roth conversion rights. For spouses at or past age 59 1/2, this is almost always the answer: maximum deferral, maximum flexibility.

The exception is a younger spouse who needs the money. Distributions from an inherited IRA are never subject to the 10% early withdrawal penalty, while distributions from your own IRA before 59 1/2 generally are. A 45-year-old widow who rolls the account over and then needs $50,000 pays the penalty; had she stayed a beneficiary, she would not. The common play is to remain a beneficiary until 59 1/2, then roll it over. As a beneficiary she can also delay RMDs until the year her husband would have turned 73 if he died before his required beginning date.

The rollover decision interacts with everything else in a widowed year: filing status changes, the survivor's own Roth conversion window before RMDs begin, and Social Security timing. It deserves an hour of analysis, not a checkbox on a custodian form.

Roth IRAs have no lifetime RMDs, so the owner is always treated as having died before their required beginning date. For a non-spouse beneficiary that means the clean version of the 10-year rule: no annual minimums, one deadline at year ten. And if the owner first funded any Roth IRA at least five years before, every dollar comes out federally tax free, earnings included.

That flips the strategy. With a traditional inherited IRA you spread distributions to manage brackets. With an inherited Roth you do the opposite: touch nothing for ten years, let it compound tax free, and drain it in December of year ten. Taking Roth money early buys nothing and forfeits tax-free growth. The only common exception is a beneficiary who needs the cash now, and even then the Roth should be the last account tapped.

For parents doing the planning, this is the estate angle on Roth conversions: converting during your own low-bracket years prepays tax at your rate, hands heirs an asset with a tax-free decade of growth, and spares them the years 1-9 RMD machinery entirely. High-balance traditional IRAs headed to high-earning children are the textbook case; our Roth conversion guide covers the bracket math.

Every dollar from an inherited traditional IRA lands on top of your other income at ordinary rates. The 10-year deadline tempts people to defer everything and take one heroic distribution in year ten. That is usually the most expensive possible schedule, because it shoves most of the account through your top brackets in a single year.

The refinement is to weight withdrawals toward your personally cheap years: a sabbatical, a business loss year, early retirement before Social Security and your own RMDs begin. Beneficiaries near retirement should also watch the second-order effects: inherited IRA income raises the MAGI that drives Medicare IRMAA surcharges and the formulas that make Social Security taxable, so a "cheap" withdrawal year can be more expensive than the bracket alone suggests.

1. Splitting between siblings: December 31 of the year after death.

When one IRA names several children, split it into separate inherited IRAs by December 31 of the year following the year of death. Make the deadline and each sibling runs their own schedule based on their own status, which matters enormously when one qualifies as an eligible designated beneficiary (disabled, or close in age to the parent) and the others do not. The mechanics must be trustee-to-trustee transfers into properly titled inherited IRAs ("Dad's name, deceased, FBO your name"). If a non-spouse beneficiary takes a check payable to themselves, that money is distributed, taxable, and cannot be put back.

2. Trusts as beneficiaries: fine if drafted for it, ugly if not.

A "see-through" trust passes its beneficiaries' status through to the IRA, useful for minor children, spendthrift concerns, or disabled beneficiaries who need a special needs trust. A trust that fails the see-through requirements is a non-designated beneficiary stuck with the five-year or ghost rule. And income accumulated inside any trust hits the top 37% federal bracket at only a few thousand dollars of income, a compression that surprises every family the first April. If a trust is the beneficiary, the drafting attorney and the CPA need to be in the same conversation.

3. Missed RMDs: a 25% penalty with an escape hatch.

Missing a required distribution triggers a 25% excise tax on the shortfall, cut to 10% if you correct it within the window (generally by the end of the second year following the miss). The IRS also waives the penalty for reasonable cause: withdraw the shortfall, file Form 5329 with a brief explanation, and ask. Beneficiaries confused by the waiver-era rules have a genuinely sympathetic fact pattern. The unforgivable version is ignoring it for years.

4. Missing the year-of-death RMD.

If the owner died after RMDs began but before taking that year's distribution, the beneficiary must take the remainder of the decedent's final RMD, and it is taxed to the beneficiary, not the estate. The final regulations give an automatic penalty waiver if it comes out by the beneficiary's tax filing deadline for that year, but custodians will not do it for you.