Inherited IRA Rules: What Beneficiaries Need to Know About the 10-Year Rule

The 10-Year Rule for Non-Spouse Beneficiaries

The most important inherited IRA rule under the SECURE Act is the 10-year rule. For non-spouse beneficiaries who inherit an IRA from an owner who died after December 31, 2019, the entire account balance must be distributed by December 31 of the year containing the 10th anniversary of the original owner's death. This applies to both Traditional and Roth IRAs. There is no requirement to take annual RMDs during the 10-year period (though this was clarified in 2022 IRS guidance that created some confusion — see the discussion below). You can take distributions at any time and in any amount during the 10-year period, as long as the account is fully emptied by the deadline. How inherited assets fit into your portfolio →

The 10-year rule applies to most beneficiaries, but there are important exceptions. Eligible designated beneficiaries (EDBs) can still use the stretch IRA rules: surviving spouses, minor children (until age 21), disabled individuals, chronically ill individuals, and beneficiaries who are not more than 10 years younger than the original owner. These EDBs can take RMDs over their life expectancy, potentially stretching the tax liability over decades. Minor children must switch to the 10-year rule when they reach age 21. For all other beneficiaries, the 10-year rule is mandatory, and the old stretch IRA strategy is no longer available.

RMDs During the 10-Year Period: The IRS Guidance

The IRS issued proposed regulations in February 2022 that created significant confusion about whether annual RMDs are required during the 10-year period. The final regulations, issued in July 2024, clarified the rules: if the original IRA owner had already started taking RMDs (generally after age 73), then the beneficiary must take annual RMDs in years 1 through 9 of the 10-year period, in addition to emptying the account by year 10. If the original owner died before their required beginning date (before they had started RMDs), then no annual RMDs are required — only the full distribution by the end of year 10. This distinction matters because failing to take an RMD during the 10-year period triggers a 25% excise tax on the amount not withdrawn (reduced to 10% if corrected promptly). Estate planning for retirement accounts →

The practical implication: if you inherit an IRA from someone who was over age 73 and already taking RMDs, you must carefully calculate and take RMDs each year in years 1-9. The RMD amount is based on your life expectancy using the IRS Single Life Expectancy Table. Many beneficiaries miss this requirement and face significant penalties. Working with a tax professional or using IRA distribution software is strongly recommended for inherited IRAs, especially when the original owner was past their RMD start date.

Inherited Roth IRA Rules

Inherited Roth IRAs have an important advantage: qualified distributions from Roth IRAs are tax-free to the beneficiary, as long as the original Roth account was opened at least five years before the distribution. This means that the 10-year rule still applies to inherited Roth IRAs (the entire balance must be distributed within 10 years), but the distributions are generally tax-free. This makes Roth IRAs the best type of retirement account to inherit from a tax perspective. If you inherit a Roth IRA, you should still plan your withdrawals carefully — while the money is tax-free, you want to maximize the time it stays invested and growing. The optimal strategy is typically to let the money grow tax-free for the full 10 years and withdraw at the end, unless you need the money sooner. How to build your own Roth IRA →

One important strategy: if you inherit a Roth IRA, consider using the 10-year period to let the assets continue growing tax-free. Unlike Traditional IRAs where you want to spread withdrawals over 10 years to manage taxes, Roth IRAs have no tax consequence for the distribution. Therefore, maximizing the tax-free growth period by withdrawing as late as possible is usually optimal. However, if you are subject to the annual RMD requirement (inherited from someone past their RBD), you must take annual RMDs even from a Roth IRA — though they remain tax-free. The only real penalty for delaying Roth IRA withdrawals is the opportunity cost if you needed the money for other purposes.

Inherited Traditional IRA Tax Planning

Inherited Traditional IRAs are the most complex from a tax perspective because every dollar withdrawn is taxed as ordinary income. The key strategy is income smoothing — spreading withdrawals over the 10-year period to avoid being pushed into higher tax brackets. If you inherit $300,000, withdrawing $30,000 per year adds a manageable amount to your income. Withdrawing $300,000 in a single year could push you into the top bracket and trigger higher Medicare premiums (IRMAA surcharges) and the Net Investment Income Tax. Create a 10-year distribution plan that considers your other income, anticipated tax bracket changes, and large expenses. Year-round tax planning strategies →

Additional strategies for inherited Traditional IRAs include: taking larger withdrawals in years when you have low income (between jobs, during sabbaticals, or early retirement); using the inherited IRA to fund a Roth IRA conversion if you have earned income (though you cannot roll an inherited IRA into your own IRA); and coordinating with your other retirement account withdrawals to manage your overall tax picture. Remember that inherited IRAs must be held in a separate inherited IRA account (not commingled with your own IRA) to avoid severe tax penalties. Most brokerages will automatically set up a separate inherited IRA account when you notify them of the death of the original owner.

What happens if I miss the 10-year deadline?

If you fail to fully distribute an inherited IRA by the 10-year deadline, the remaining balance is generally treated as a lump-sum distribution and subject to ordinary income tax in that year. Additionally, if you were required to take annual RMDs during the 10-year period and missed one, you face a 25% excise tax on the amount that should have been withdrawn. This penalty can be reduced to 10% if you correct the error promptly by taking the missed distribution and filing Form 5329 with an explanation. The IRS has some discretion to waive the penalty if you can demonstrate reasonable cause for the failure. To avoid these consequences, set calendar reminders for each year of the 10-year period and work with a tax professional.

Can I disclaim an inherited IRA?

Yes, you can disclaim (refuse) an inherited IRA, but only if you do so in writing within nine months of the original owner's death and you have not accepted any distributions from the account. Disclaiming means you legally treat yourself as having predeceased the original owner, and the IRA passes to the contingent beneficiary (often your children or another family member). Disclaiming can be useful if you do not need the money and want to pass it to younger beneficiaries who have longer time horizons, or if accepting the inheritance would push you into a higher tax bracket or trigger negative tax consequences. However, you cannot direct who receives the disclaimed assets — the IRA custodian follows the original beneficiary designation. A qualified disclaimer is irrevocable and must follow strict IRS rules.

How is an inherited IRA taxed if I am the spouse?

Surviving spouses have unique options that other beneficiaries do not. A spouse can treat the inherited IRA as their own by rolling it into their existing IRA or transferring it to a new IRA in their name. This allows the spouse to delay RMDs until their own required beginning date (age 73) and use their own life expectancy for RMD calculations. A spouse can also elect to be treated as a beneficiary and take distributions over their life expectancy using the stretch IRA rules. The spousal rollover is generally the best option because it offers the most flexibility and the longest deferral period. If the spouse needs immediate income, they can take distributions as needed. Spouses are also exempt from the 10% early withdrawal penalty on IRA distributions, even before age 59 1/2, in certain circumstances related to the death of the account owner.

Do I have to take RMDs from an inherited IRA if I am still working?

Yes, the 10-year rule applies regardless of your employment status. Unlike your own IRAs, which have no RMDs until age 73, inherited IRAs have strict distribution timelines that apply to all beneficiaries regardless of age or employment. Even if you are 30 years old and working, you must take annual RMDs (if applicable based on the original owner's age) and fully distribute the inherited IRA within 10 years. There is no exception for working beneficiaries who want to defer distributions. The only way to defer taxes on inherited retirement funds is through the eligible designated beneficiary exceptions (spouse, minor child, disabled, chronically ill, or not more than 10 years younger) or by inheriting a Roth IRA where the distributions are tax-free but still subject to the 10-year timeline.

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