Inheriting an IRA can feel like a financial windfall — but it comes attached to tax obligations that many beneficiaries do not discover until they have already made costly mistakes. The SECURE Act of 2019 and the SECURE 2.0 Act of 2022 fundamentally changed inherited IRA rules for most beneficiaries, and IRS enforcement began in earnest starting in 2025. If you inherited an IRA in the last few years, or expect to, understanding these rules is urgent.
The Old Rules vs. The New Rules
Before the SECURE Act (for deaths before January 1, 2020), most beneficiaries could "stretch" distributions from an inherited IRA over their own life expectancy — taking small required minimum distributions each year for decades. This allowed the account to continue growing tax-deferred for a long time.
For deaths on or after January 1, 2020, the stretch IRA is largely eliminated for most beneficiaries. The new rule requires most non-spouse beneficiaries to fully distribute the inherited IRA within 10 years of the original owner's death.
Who the 10-Year Rule Applies To
The 10-year rule applies to "non-eligible designated beneficiaries" — which covers most people who inherit an IRA from someone other than a spouse. Specifically:
- Adult children of the deceased (the most common scenario)
- Grandchildren
- Siblings, nieces, nephews, and other relatives
- Friends or non-related individuals named as beneficiaries
- Trusts in most configurations
Under the 10-year rule, there is no required annual distribution — you can take money out in any pattern you choose, as long as the account is fully distributed by December 31 of the 10th year after the original owner's death. You could take nothing for 9 years and withdraw everything in year 10, or take equal amounts each year, or any combination.
The Critical Complication: Annual RMDs Within the 10-Year Window
Here is where many beneficiaries have been caught off guard. The IRS clarified in final regulations (released in 2024) that if the original account owner had already reached their Required Beginning Date (age 73 for RMDs) before death, non-spouse beneficiaries must take annual distributions during the 10-year period — not just empty the account by year 10.
The annual amount is calculated based on the beneficiary's life expectancy using IRS tables. Failing to take these annual distributions triggers the standard RMD penalty: 25% of the amount that should have been withdrawn (reduced to 10% if corrected within two years).
If the original owner died before their Required Beginning Date (before they started taking RMDs), non-spouse beneficiaries only need to empty the account by the end of year 10 — no annual minimums required.
Eligible Designated Beneficiaries: The Exceptions
Certain beneficiaries are exempt from the 10-year rule and may still use the old stretch rules:
- Surviving spouses — have the most flexibility (see below)
- Minor children of the deceased — can stretch until age 21, then the 10-year rule kicks in
- Disabled individuals (as defined by IRS rules)
- Chronically ill individuals
- Beneficiaries not more than 10 years younger than the deceased — for example, a sibling close in age
Surviving Spouse Rules: The Most Flexible Options
A surviving spouse who inherits an IRA has several choices, more than any other beneficiary:
- Rollover to own IRA: Roll the inherited IRA into their own IRA as if it were always theirs. RMDs are based on the spouse's own age, starting at 73. This is usually the best option for younger surviving spouses who do not need the money immediately.
- Treat as inherited IRA: Keep it as an inherited IRA. If the spouse is under 59.5 and needs distributions, this avoids the 10% early withdrawal penalty that would apply to their own IRA. This is useful for younger surviving spouses who need income before age 59.5.
- Elect to be treated as the deceased spouse: A newer SECURE 2.0 provision allows a surviving spouse to delay RMDs based on when the deceased spouse would have turned 73, which can extend the deferral period.
The right choice depends heavily on the surviving spouse's age, current income, and whether they need distributions soon. This decision is worth discussing with a financial advisor or CPA.
Tax Strategy for the 10-Year Distribution Window
The biggest mistake non-spouse beneficiaries make is waiting until year 10 to take the entire distribution. If you inherited a $500,000 traditional IRA and withdraw it all in year 10, that $500,000 hits your taxable income in a single year — potentially pushing you into the highest brackets and triggering Medicare surcharges.
A far better approach: spread distributions over the 10 years in a way that fills up lower tax brackets each year without pushing into higher ones. If your normal income is $60,000 (married filing jointly, in the 12% bracket), you could take an additional $36,950 from the inherited IRA each year to reach the top of the 12% bracket — paying only 12% on those distributions instead of potentially 22% or higher if bunched.
Model your distributions using our income tax calculator to see exactly how different annual withdrawal amounts affect your tax bracket each year.
Inherited Roth IRA Rules
Inherited Roth IRAs follow the same 10-year rule for non-spouse beneficiaries, with one critical difference: distributions from an inherited Roth IRA are generally tax-free (as long as the original account was held for at least 5 years). This makes the distribution timing less urgent from a tax perspective — there is no tax cost to waiting until year 10. The growth continues tax-free, and you pull it all out tax-free at the end.
For inherited Roth IRAs, the strategy is simpler: let it grow as long as possible (all 10 years if you do not need the money) and take the full distribution in year 10, entirely tax-free.
Inherited 401(k) Rules
Inherited 401(k) accounts follow similar rules to inherited IRAs under the SECURE Act. However, many employer plan administrators require beneficiaries to distribute the account within 5 years rather than 10 — check the plan documents. Rolling an inherited 401(k) into an inherited IRA at a brokerage is often the better move, as it gives you more investment choices and the full 10-year window under IRS rules.
What to Do If You Have Already Missed Distributions
If you inherited an IRA after 2020 and have not been taking required annual distributions (for accounts where the owner died after their Required Beginning Date), the IRS offered penalty relief through 2024. Beginning in 2025, penalties apply. If you have missed distributions, consult a tax professional about whether a penalty waiver request (using Form 5329) is appropriate for your situation.
Use our income tax calculator to model how different annual distribution amounts from an inherited IRA affect your total federal tax bill each year.
Naming Beneficiaries: What Original IRA Owners Should Know
If you own an IRA, the beneficiary designations you file with your brokerage override your will entirely. Your IRA does not pass through your estate — it goes directly to whoever is named on the beneficiary form. This makes keeping beneficiary designations current one of the most important estate planning tasks.
Naming a trust as IRA beneficiary adds complexity — trusts must meet specific requirements to qualify for the stretch or 10-year rules, and some trust structures can force immediate distribution of the entire IRA at the owner's death. If you are considering naming a trust as IRA beneficiary, work with an estate planning attorney who specializes in this area.
Naming your estate as beneficiary is generally the worst option — it eliminates favorable beneficiary treatment and forces the IRA through probate.
State Tax on Inherited IRAs
Federal rules govern the distribution timing, but state taxes apply separately to the distributions you take. Most states tax inherited IRA distributions as ordinary income at state rates. A handful of states — including Pennsylvania — exempt inherited IRA distributions from state tax entirely. If you are a beneficiary in a high-income-tax state, the state tax implications of your distribution strategy are worth factoring into your planning, particularly if you have flexibility over which years to take larger distributions.