CEO, The Savvy Investor Limited · Investment Educator
Updated: 13 June 2026 · Reading time: 9 minutes
⚠️ Important: This article provides educational information for US taxpayers and is not personalised tax, legal, or investment advice. Inherited retirement account rules are genuinely complex and depend on your relationship to the original owner, the year of death, and the account type. The cost of getting an inherited IRA wrong is real money. Please consult a qualified tax professional or financial adviser before you act.
Inheriting an IRA used to be one of the most tax-friendly windfalls in the US system. A beneficiary could “stretch” withdrawals across their own lifetime, letting the account compound tax-deferred for decades. The SECURE Act of 2020 ended that for most people, and the final IRS regulations that took effect on 1 January 2025 added a twist that caught a lot of beneficiaries by surprise: many now have to take a withdrawal every year, not just empty the account by the end.
This guide explains the 10-year rule in plain English: who it applies to, who is exempt, how Roth inherited IRAs differ, and the single biggest planning mistake (letting the whole balance land in one tax year) that hands a chunk of your inheritance straight to the IRS.
The short version
- Most non-spouse beneficiaries who inherit a traditional IRA must empty the account within 10 years of the original owner’s death (by 31 December of the tenth year).
- Since 2025, if the original owner had already reached their required beginning date (had started, or was due to start, RMDs), the beneficiary must also take an annual RMD in years 1 through 9, then clear the rest by year 10.
- If the owner died before their required beginning date, there are no annual RMDs. You can withdraw whenever you like inside the 10 years, as long as it is empty by the end.
- A protected group called eligible designated beneficiaries (spouses, minor children of the owner, the disabled or chronically ill, and anyone not more than 10 years younger than the owner) escapes the 10-year rule and can still stretch withdrawals.
- Surviving spouses have the best options of all, including treating the IRA as their own.
- Inherited Roth IRAs follow the 10-year rule too, but with no annual RMDs in years 1 to 9, and qualified withdrawals are tax-free.
- The penalty for missing a required withdrawal is 25% of the shortfall, reduced to 10% if you fix it quickly.
What is an inherited IRA?
An inherited IRA (also called a beneficiary IRA) is the account you receive when you are named as the beneficiary of someone else’s IRA, 401(k), or similar retirement account. You cannot simply merge it with your own retirement savings (unless you are a spouse, see below). It is retitled to show both the deceased owner and you as beneficiary, and it comes with its own set of withdrawal rules.
One rule has not changed: you can never make new contributions to an inherited IRA, and you cannot roll it into your own IRA unless you are the surviving spouse. What changed is how quickly you must take the money out.
The 10-year rule, and the 2025 annual-RMD twist
For deaths from 2020 onward, the default rule for most non-spouse beneficiaries is the 10-year rule. The entire account must be withdrawn by 31 December of the tenth year following the year of death. Inherit in 2026, and the deadline is 31 December 2036.
The question everyone got wrong between 2020 and 2024 was whether you also had to take something each year. The IRS finalised its answer in regulations effective from 2025, and it hinges entirely on one date: the original owner’s required beginning date (RBD), which is broadly when their own RMDs were due to start.
| Situation | Annual RMD in years 1 to 9? | Account must be empty by |
|---|---|---|
| Owner died before their required beginning date | No. Withdraw any time inside the window. | End of year 10 |
| Owner died on or after their required beginning date | Yes. A minimum withdrawal is due each year. | End of year 10 |
| Beneficiary is an eligible designated beneficiary | Stretch over life expectancy (10-year rule does not apply) | Not capped at 10 years |
In plain terms: if Grandpa was already 78 and taking his RMDs when he died, you (a non-spouse beneficiary) must keep an annual withdrawal going each year and clear the account by year 10. If he died at 68, before his RMDs had started, you only have to meet the year-10 deadline, with total freedom on timing in between.
Who is exempt: eligible designated beneficiaries
Five categories of beneficiary are not bound by the 10-year rule. They are called eligible designated beneficiaries (EDBs) and they can still stretch withdrawals over their own life expectancy:
- The surviving spouse (with extra options of their own, below).
- A minor child of the original owner, but only until they reach age 21. At 21, the 10-year clock then starts.
- A disabled beneficiary (meeting the IRS definition).
- A chronically ill beneficiary.
- Anyone not more than 10 years younger than the owner (a sibling close in age, for example).
Note the detail that trips families up: a grandchild or an adult child is not an EDB. They get the 10-year rule. Only a minor child of the owner qualifies, and only until 21.
Surviving spouses: the strongest hand
If you inherit from your spouse, you have options nobody else gets, and the right one depends on your age and income needs:
- Treat it as your own (spousal rollover). The IRA becomes yours outright. You name your own beneficiaries, and RMDs follow your own age. This is usually best if you are at or near retirement age and will not need the money before 59 and a half.
- Remain a beneficiary. Useful if you are under 59 and a half and may need withdrawals, because beneficiary withdrawals avoid the 10% early-withdrawal penalty.
- Stretch over your life expectancy as an eligible designated beneficiary.
Because a wrong move here can be irreversible, this is the one scenario where a short conversation with a tax professional almost always pays for itself.
Inherited Roth IRAs are different (and better)
Inherit a Roth IRA and the 10-year rule still applies to non-spouse beneficiaries, but two things work in your favour. First, because Roth owners are never subject to RMDs during their lifetime, they are always treated as dying “before” their required beginning date, so there are no annual RMDs in years 1 to 9. You simply empty it by year 10. Second, qualified withdrawals are tax-free, provided the account had been open at least five years.
That combination points to a clear strategy: leave an inherited Roth untouched and invested for the full 10 years to capture as much tax-free growth as possible, then take it all at the end. There is no tax cost to waiting, unlike with a traditional inherited IRA. If you are weighing Roth versus traditional accounts for your own savings, our Roth IRA vs Traditional IRA guide covers the trade-off in full.
The biggest mistake: the year-10 tax bomb
With a traditional inherited IRA, every dollar you withdraw is taxed as ordinary income on top of your existing earnings. The most expensive error is to leave a large balance untouched and pull it all out in year 10. A $300,000 balance withdrawn in a single year can push a middle earner from the 22% bracket deep into the 32% or 35% bracket, costing tens of thousands more than necessary.
💡 Worked example: smoothing the withdrawals
Maria, a 45-year-old earning $90,000, inherits a $300,000 traditional IRA from her father, who had already started RMDs. She must take an annual RMD and empty it by year 10.
- The expensive way: minimal withdrawals, then $250,000 in year 10. That single year spikes her into the 32% bracket and inflates her marginal rate on a large slice of the inheritance.
- The smart way: roughly $30,000 a year for 10 years. Most of it stays inside her 22% and 24% bands, and the lifetime tax bill can be tens of thousands of dollars lower.
The lesson: with a traditional inherited IRA, spreading withdrawals evenly across the 10 years is usually the lowest-tax path. Use low-income years (a sabbatical, a gap between jobs, early retirement) to take more.
The penalty for getting it wrong
If you miss a required withdrawal, the penalty is 25% of the amount you should have taken. The good news, courtesy of SECURE 2.0, is that this drops to 10% if you withdraw the missed amount and file a corrected return within two years. That is a big improvement on the old 50% excise tax, but it is still real money, and it is entirely avoidable with a simple annual reminder.
The IRS waived penalties for some missed RMDs from inherited IRAs in the transition years (2021 through 2024) while the rules were unsettled. Those waivers were transitional. For 2026, assume the annual-RMD requirement is fully in force and plan accordingly.
Frequently asked questions
Do I pay a penalty for withdrawing from an inherited IRA before age 59 and a half?
No. Withdrawals from an inherited IRA are exempt from the 10% early-withdrawal penalty, whatever your age. Traditional inherited IRA withdrawals are still taxed as ordinary income; inherited Roth withdrawals are tax-free if the account met the five-year test.
Can I roll an inherited IRA into my own IRA?
Only if you are the surviving spouse. Every other beneficiary must keep it as a separate inherited IRA and follow the beneficiary withdrawal rules.
What if I inherited the IRA back in 2021 or 2022?
Your 10-year clock runs from the year of the original owner’s death, so the year-10 deadline is fixed. If the owner had started RMDs, annual withdrawals are now required from 2025 onward under the final regulations. Check whether you owe a withdrawal for the current year.
Does the 10-year rule apply to inherited 401(k)s too?
Yes. The same SECURE Act framework applies to most inherited employer plans such as 401(k)s and 403(b)s. Many beneficiaries roll an inherited 401(k) into an inherited IRA to get more investment choice and cleaner administration.
How do I work out the annual RMD amount?
It is based on your life expectancy from the IRS Single Life Expectancy table, using the account balance at the end of the prior year. Most IRA custodians will calculate it for you, but the legal responsibility to take it is yours. See our companion guide on required minimum distributions for 2026 for the mechanics.
Planning your own retirement accounts?
Understand the wrappers before you build the estate.
Leave a Reply
You must be logged in to post a comment.