Inherited IRA Rules: The 10-Year Rule and What Beneficiaries Must Do

The first question every beneficiary must answer: did the original account owner die before January 1, 2020, or on or after that date? Everything else follows from this.

• Deaths in 2019 or earlier. Non-spouse beneficiaries who inherited before 2020 can generally still use life-expectancy-based required minimum distributions (the classic stretch IRA). Those RMD rules remain in effect today for those older inherited accounts.

• Deaths in 2020 or later. The SECURE Act changed inherited IRA distribution rules starting January 1, 2020. Most designated beneficiaries must now liquidate the entire account by the end of the 10th calendar year following the original account owner's death.

Example: if the account owner died in August 2024, the inherited IRA must be fully distributed by December 31, 2034, unless the beneficiary qualifies as an eligible designated beneficiary.

Every decision from here depends on the date of death. Get it confirmed first.

The IRS places inherited IRA beneficiaries into three primary categories, and your category determines your withdrawal timeline.

Designated beneficiary: A living person named on the beneficiary form of the IRA or retirement plan. This designation is what triggers either the 10-year rule or the life-expectancy stretch.

Eligible designated beneficiary (EDB): A subset of designated beneficiaries with expanded options. The five categories:

1. Surviving spouse of the IRA owner

2. Minor child of the account owner (EDB status ends when the child reaches age 21; the 10-year rule then kicks in for remaining assets)

3. Disabled individual (per IRC §72(m)(7))

4. Chronically ill individual (per IRC §7702B(c)(2))

5. Someone not more than 10 years younger than the original account holder

Non-designated beneficiary: Estates, charities, and certain trusts that do not qualify as "see-through." These often face the 5-year rule or remaining life-expectancy payout, depending on whether the deceased had reached their required beginning date.

If you are a designated beneficiary but not an EDB, you are a non-eligible designated beneficiary. That means the 10-year rule applies.

For most nonspouse beneficiaries inheriting an IRA from someone who died in 2020 or later, the inherited account must be fully distributed by the end of the 10th calendar year after the original owner's death. Non-spouse beneficiaries must withdraw inherited IRA funds within 10 years. Beneficiaries can generally withdraw any amount in any year, but the full balance must be gone by the deadline.

RMDs for inherited IRAs depend on the original owner's age at death. If the account owner had already reached their required beginning date for RMDs (currently age 73 under SECURE 2.0), beneficiaries must take annual distributions in years 1 through 9 and still empty the account by year 10. Beneficiaries must take RMDs starting the year after the owner's death if the original owner had an RMD obligation.

Example: An adult child inherits a $600,000 traditional IRA in 2026 from a parent who was already taking RMDs. The child earns $150,000 per year. Two approaches:

• Equal annual withdrawals: Roughly $60,000 per year over 10 years. Each withdrawal adds to taxable income, but the child avoids a single-year spike.

• Back-loading to year 10: The child takes only the minimum required annual distributions in years 1-9, then withdraws the remaining balance in 2036. If the remaining balance is $400,000+, that lump sum could push the child into the 35% or 37% federal bracket for that year.

Every dollar withdrawn from an inherited traditional IRA is taxed as ordinary income. Poorly timed withdrawals push beneficiaries into a higher tax bracket. Tax strategy is critical when managing withdrawals from inherited IRAs. Multi-year planning with a financial advisor can smooth the income over the full 10-year period.

Surviving spouses have more options than other types of beneficiaries regarding inherited IRAs. A spouse can choose between:

• Rolling the inherited IRA into their own IRA. Standard IRA rules then apply. RMDs begin when the surviving spouse reaches their own RMD age (73 for many, shifting to 75 for younger cohorts). There is no 10-year deadline. The spouse can also make contributions if eligible.

• Keeping it as an inherited account. The spouse may delay taking RMDs until the deceased spouse would have reached RMD age, or use life-expectancy-based inherited IRA RMDs. This route can benefit a younger spouse who needs access before age 59½ without penalty.

• Disclaiming all or part of the inheritance so it passes to contingent beneficiaries.

The right path depends on the surviving spouse's age, income, other retirement accounts, and tax bracket. A 60-year-old spouse inheriting from a 78-year-old original account holder who treats the IRA as their own IRA delays RMDs for 13 years. Keeping it as an inherited account might provide penalty-free access sooner.

Because the optimal choice varies, this is where a custom IRA & 401(k) planning analysis pays for itself. Book a call to walk through your numbers.

Eligible designated beneficiaries are the main exception to the 10-year rule for deaths in 2020 or later. Eligible designated beneficiaries can use lifetime distribution rules and stretch distributions over their own life expectancy.

Category-by-category:

• Surviving spouse: Choices outlined above.

• Minor child of the account owner: Life-expectancy RMDs until the child reaches age 21. Then the 10-year rule kicks in for the remaining assets.

• Disabled individual: Must meet the IRS definition at the date of the account holder's death.

• Chronically ill individual: Defined under IRC §7702B(c)(2).

• Individual not more than 10 years younger than the original IRA owner: An older sibling or close-in-age friend, for example.

EDBs generally start taking RMDs in the year after the account owner's death based on IRS life-expectancy tables, but many can also elect the 10-year rule if that fits their tax situation better.

Trusts drafted as "see-through" conduit or accumulation trusts can preserve life-expectancy payouts for EDB beneficiaries, but the drafting must meet specific IRS conditions. A trust that fails those conditions defaults to non-designated beneficiary treatment. Coordinating with an estate and trust planning team and a tax professional before the original account owner's death is the most reliable way to protect these benefits.

Original Roth IRA owners never take RMDs during their lifetime. Beneficiaries of an inherited Roth IRA, however, do face distribution rules after the account holder's death.

For most non-spouse beneficiaries inheriting a Roth IRA from someone who died in 2020 or later, the 10-year rule applies: the inherited Roth IRA must be emptied by the end of the 10th year. Inherited Roth IRAs may require annual RMDs for beneficiaries if the original owner had reached their required beginning date under certain employer plan arrangements.

The tax treatment is the key difference. Withdrawals from Roth inherited IRAs are generally tax free if the account was open for at least 5 years before the owner's death. Contributions are always withdrawn income-tax free. Earnings qualify as tax free once the 5-year aging requirement is met.

Because inherited Roth distributions carry no income tax in most cases, they function as valuable "bracket fillers" late in the 10-year window. Coordinate inherited Roth timing with your broader investment management strategy to maximize potential tax-deferred growth in taxable accounts while drawing down the Roth.

Withdrawals from traditional inherited IRAs are treated as ordinary income and taxable in the year withdrawn. Qualified distributions from inherited Roth IRAs are generally income-tax free. Both types land on your individual tax return, stacking on top of wages, Social Security, and other income.

What catches people off guard:

• Large inherited IRA withdrawals in prime earning years push beneficiaries into higher marginal brackets, phase out deductions or credits, and can increase taxes on Social Security.

• Medicare Part B/D premiums are based on income from two years prior. A $200,000 inherited IRA withdrawal in 2024 can increase premiums in 2026 through IRMAA surcharges.

• There is no 10% early withdrawal penalty for beneficiaries of inherited IRAs regardless of age. The penalty that bites is the RMD shortfall penalty, not early access.

After-tax contributions inside employer plans rolled into IRAs carry separate basis rules, but most beneficiaries inheriting straightforward pre-tax IRA accounts owe income taxes on the full amount withdrawn. For strategies on managing untaxed portions of IRA distributions, coordinate with a qualified tax professional. Book a call to start.

Beneficiaries should track the final distribution deadline from day one. Here is the checklist:

1. Obtain the death certificate.

2. Contact the plan administrator or financial institution and ask specifically about inherited IRA procedures.

3. Confirm the exact date of death and account type (traditional IRA, Roth IRA, 401(k), SIMPLE IRA, etc.).

4. Verify the beneficiary designation form on file. Check whether there are multiple beneficiaries; if so, the account may need to be split into separate accounts for each individual beneficiary.

5. Beneficiaries can open their own inherited IRA to manage funds. Title it correctly, e.g., "John Smith, deceased 3/15/2026, FBO Jane Smith beneficiary."

Non-spouse beneficiaries cannot roll over inherited IRA assets into their own IRA or use a 60-day rollover. They must use a direct trustee-to-trustee transfer into an inherited account to avoid triggering immediate income taxes on the full balance.

Decide on an initial withdrawal schedule. Equal annual distributions, front-loading during low-income years, or a custom pattern all have different tax implications. A financial planner can model each scenario against your current and projected income.

After inheriting, revisit your own beneficiary designations. An inherited IRA that passes to your heirs creates a second layer of distribution rules. Retirement income planning should account for these inherited assets.

For pre-retirees, retirees, and business owners, an inherited account can shift retirement timing, tax brackets, and legacy goals. Investment planning is important for managing the inherited IRA's growth and distributions; the account should not be handled in isolation.

Inherited IRAs interact with:

• Retirement income planning: Should you spend the inherited IRA first or let your own accounts grow?

• Roth conversion strategy: A Roth conversion in your own IRA accounts during a low-income year, paired with smaller inherited IRA withdrawals, can reduce total tax liabilities over the 10-year window.

• Social Security claiming decisions: Inherited IRA distributions count toward AGI, which affects how much of your Social Security is taxable.

• Business exit or liquidity events: A business owner selling a company in year 6 of the 10-year window faces a collision of taxable income sources.

This article is general information only and not individualized tax, legal, or investment advice. Each strategy carries its own costs, risks, and tax consequences. Consult a qualified financial professional before acting.

Schedule a personalized inherited IRA strategy session with Revolutionary Wealth.

These FAQs address issues not fully covered above. IRS rules may change as new guidance is issued.