Inherited IRA Rules: What Beneficiaries Need to Know

Key takeaways

• A surviving spouse has options no other beneficiary gets, including rolling the account into their own IRA or keeping it as an inherited account for more flexible early access.
• Five categories of eligible designated beneficiary, including minor children, disabled or chronically ill individuals, and people not more than ten years younger than the original owner, are exempt from the ten-year rule and can stretch distributions over their own life expectancy.
• Missing a required distribution triggers a 25% excise tax on the shortfall, reduced to 10% if corrected within the IRS's correction window.
• Inherited Roth IRAs follow the same ten-year framework but generally don't require annual withdrawals along the way, and qualified withdrawals stay tax-free.

Losing someone close to you comes with enough to sort through, then a letter arrives from a brokerage or bank about a retirement account you've suddenly inherited. On top of grief, there's now a set of federal rules to navigate, ones that changed substantially a few years ago and confused even people who work in finance for a living. If you've just inherited an IRA and aren't sure what you're supposed to do, or by when, you're in good company. The rules are more workable than they first appear once you know which category you fall into, and getting that classification right early saves a lot of stress later.

Why this got more complicated than it used to be

For decades, IRA beneficiaries could spread withdrawals over their own lifetime, a strategy commonly called the "stretch IRA." A twenty-something who inherited an IRA from a grandparent might have had five decades to draw it down, paying tax on a small slice each year while the rest kept growing.

The Setting Every Community Up for Retirement Enhancement Act, signed into law in December 2019 and generally effective for deaths occurring in 2020 or later, eliminated that option for most people⁽¹⁾.

In its place is a rule requiring most beneficiaries to empty the account within ten years of the original owner's death. For four years afterward, the IRS and the tax and financial planning industry disagreed about whether that also meant taking a withdrawal every single year during that ten-year window, or whether a beneficiary could simply let the account ride and take everything at the end. The IRS settled that question in final regulations issued in July 2024⁽²⁾, and the answer surprised a lot of people who'd been advised otherwise. Whether it applies to your situation depends on a few specific facts about the person you inherited from and your relationship to them, which is what the rest of this covers.

Consider a hypothetical illustration of why this timing question has real financial consequences beyond paperwork. A beneficiary who inherits a $200,000 traditional IRA and takes nothing at all for nine years, then withdraws the entire balance in year ten, adds that full $200,000 to their taxable income in a single year, stacked on top of whatever else they earn that year.

Splitting that same $200,000 into ten roughly equal withdrawals over the same period, even in years when it isn't strictly required, often keeps more of it out of a higher tax bracket. This is a simplified example meant only to illustrate the tax mechanics, not a projection of what any particular account or tax situation would produce, but the underlying point holds regardless of the account size. Waiting until the deadline tends to concentrate the tax bill in one year rather than spread it out.

Does it matter whether you were married to the original owner?

Yes, and it's one of the biggest factors in this entire process. A surviving spouse who is the sole beneficiary of an IRA has options no other beneficiary gets. You can roll the account into your own IRA, treat it as if it had always been yours, or keep it titled as an inherited account and take distributions based on your own life expectancy⁽¹⁾.

Rolling it into your own name is often the more tax-efficient move for an older spouse, since it lets you delay withdrawals using your own required beginning date rather than the deceased spouse's.

A younger surviving spouse sometimes chooses to keep the account titled as inherited instead, because inherited IRAs aren't subject to the 10% early withdrawal penalty that applies to your own IRA before age 59 and a half, which can be useful if you need access to the money sooner. Before you roll anything over, you're required to take out whatever required minimum distribution the deceased owner still owed for the year they died, if any⁽³⁾.

If you're not the spouse, your options are narrower. You generally can't roll an inherited IRA into your own existing IRA. Instead, the account has to move via a direct transfer into a properly titled inherited IRA, one that still identifies the deceased owner by name⁽¹⁾. Retitling it correctly is essential, because moving the money the wrong way can trigger an immediate, fully taxable distribution of the entire account, which is a mistake that's expensive and hard to reverse.

The 10-year rule and who's exempt from it

Since 2020, most people who inherit an IRA and aren't the spouse of the original owner fall into a category the IRS calls a "designated beneficiary," and designated beneficiaries generally have to empty the account by the end of the tenth year after the year the original owners death⁽¹⁾.

There's no requirement to take any specific amount in years one through nine in every case, but the account needs to be at zero by the end of year ten.

A smaller group of beneficiaries, called "eligible designated beneficiaries," are exempt from the 10-year rule entirely and can still stretch withdrawals over their own life expectancy the way beneficiaries used to be able to.

The IRS defines five categories of eligible designated beneficiary as of the date of the original owner's death:

• A surviving spouse
• A minor child of the original owner
• Someone who is disabled
• Someone who is chronically ill
• An individual who isn't more than ten years younger than the original owner⁽²⁾

If you fall into one of the last four categories, you can generally keep taking annual life expectancy payments indefinitely rather than working against a ten-year deadline, though a minor child's exemption ends once they reach adulthood, covered further below.

Do you owe a withdrawal every year, or can you wait until year ten?

This is the piece that tripped up a lot of beneficiaries, and financial advisors. Whether you owe an annual withdrawal during the ten-year window comes down to one fact, whether the original owner had already reached their required beginning date, the point at which the IRS requires IRA owners to start taking their own required minimum distributions, currently age 73⁽⁴⁾.

If the original owner died before reaching age 73, you're generally free to take distributions on whatever schedule you want during years one through nine, including nothing at all, as long as the full balance is gone by the end of year ten. If the original owner died on or after reaching that age, the IRS's July 2024 final regulations confirmed that you owe an annual required minimum distribution in years one through nine, calculated using your own life expectancy, in addition to the requirement that the account be fully distributed by the end of year ten⁽²⁾.

The IRS reasoned that once required withdrawals have started, the law has always required them to continue every year without a pause, and the ten-year deadline layers on top of that existing requirement rather than replacing it. Because this point was genuinely unsettled for years, the IRS issued transition relief covering 2021 through 2024, meaning beneficiaries who skipped annual withdrawals during that period while the rule was in dispute weren't penalized for it⁽²⁾. That relief ended with the 2025 distribution year. If you're a non-spouse beneficiary of someone who died on or after their required beginning date, the annual requirement is now firmly in place.

What happens if you miss a required withdrawal?

If you don't take the full amount you owe by the deadline, the shortfall is subject to an excise tax of 25%⁽⁵⁾. That tax drops to 10% if you correct the shortfall within the correction window, which generally runs until the earlier of the date the IRS assesses the tax, the date it mails a notice about it, or the end of the second tax year following the year the distribution was missed⁽⁵⁾. If the shortfall happened because of a reasonable error and you're taking steps to fix it, the IRS can waive the tax entirely, provided you file Form 5329 along with a letter explaining what happened⁽⁵⁾.

None of this is a reason to panic if you've been unsure whether you owed an annual distribution. It's a reason to sort out your beneficiary category now, confirm whether the original owner had reached their required beginning date (age 73), and get current on whatever's owed for this year and going forward.

Are inherited Roth IRAs treated any differently?

The ten-year framework applies to inherited Roth IRAs too, but the annual withdrawal requirement generally doesn't. Since Roth IRA owners never have to take required minimum distributions during their own lifetime, an inherited Roth IRA is treated for these purposes as though the original owner died before their required beginning date, regardless of the owner's age at death⁽²⁾. For a non-spouse beneficiary who isn't an eligible designated beneficiary, that means no annual withdrawal is required during years one through nine, only the requirement that the account be empty by the end of year ten.

The tax treatment is also friendlier. Withdrawals of the original contributions from an inherited Roth IRA are tax-free, and withdrawals of earnings are generally tax-free as well, as long as the Roth account had been open at least five years at the time of the withdrawal⁽¹⁾. If it hadn't, the earnings portion may still be subject to income tax even though it's coming out of a Roth account.

What if you're a minor, disabled, or chronically ill beneficiary?

A minor child of the original account owner is one of the five eligible designated beneficiary categories, which means they can take annual life expectancy payments rather than being locked into the ten-year rule, but only until they reach adulthood. Under the IRS's final regulations, that happens at age 21 regardless of what age of majority a particular state uses for other purposes⁽²⁾. Once the child turns 21, the ten-year clock starts, and the remaining balance has to be fully distributed by the end of the tenth year after that birthday, effectively by the time they turn 31. This treatment applies specifically to a child of the deceased owner, defined broadly enough to include a stepchild, adopted child, or eligible foster child, but it doesn't extend to grandchildren or other young relatives⁽²⁾.

Disabled and chronically ill beneficiaries can also stretch payments over their own life expectancy without the ten-year limit, but there's a documentation requirement attached. The plan administrator or IRA custodian generally needs to receive proof of the disability or chronic illness, including certification from a licensed healthcare practitioner in the case of chronic illness, no later than October 31 of the year following the year the original owner died⁽²⁾.

Missing that deadline can mean losing the more favorable treatment, so it's worth handling early rather than assuming it can wait.

What if the IRA passes to a trust or your estate instead of a named person?

Not every IRA ends up with an individual as the beneficiary. If the original owner never updated their beneficiary form, or deliberately named their estate, the account generally has to follow the same schedule that would have applied if the owner had died before 2020, either the 5-year rule if the owner died before their required beginning date, or distributions over the owner's own remaining life expectancy if they died after it⁽¹⁾. Estates and most other non-individual beneficiaries don't get access to the more favorable options available to people.

A trust named as beneficiary is more complicated, but not automatically disqualifying. If the trust meets a set of IRS requirements, commonly called a see-through trust, the individual beneficiaries of that trust can, in many cases, be treated as if they inherited the IRA directly, which opens the door to the same designated beneficiary or eligible designated beneficiary treatment discussed above⁽²⁾.

Whether a trust qualifies, and which beneficiary's age and category the IRS uses to set the distribution schedule, depends on the trust's specific terms. If an IRA in your family is left to a trust, this is a situation where getting a tax professional or estate attorney involved early is worth the cost, since getting the trust's qualification wrong can mean losing favorable tax treatment for everyone named in it.

Mistakes that cost beneficiaries

Assuming the whole ten-year window is yours to plan freely. If the original owner had already started their own required minimum distributions, you likely owe an annual withdrawal starting the year after their death, not just a single distribution at the end of year ten. Waiting and taking it all at once can also push a large lump sum into a single tax year, potentially into a higher bracket than spreading it out would have.

Trying to roll a non-spousal inheritance into your own IRA. This isn't allowed, and doing it anyway can be treated as an immediate, fully taxable distribution of the entire account rather than a tax-free transfer. Non-spouse beneficiaries need the money moved directly into a properly titled inherited IRA.

Assuming the 2021 through 2024 penalty relief still applies. That relief covered a narrow window while the annual-RMD question was unsettled, and it ended with the 2025 distribution year. Beneficiaries who assume the old flexibility still exists risk an excise tax on distributions they should have taken.

Overlooking the deceased owner's final RMD. If the original owner died after their required beginning date and hadn't yet taken that year's required withdrawal, the beneficiary generally has to take it for them, on top of whatever the beneficiary's own schedule requires going forward.

If you've inherited an IRA and want help mapping out a distribution schedule that fits your tax situation, a financial advisor or CPA who works with inherited retirement accounts can calculate your specific obligations based on your relationship to the original owner, your age, and where you land in your beneficiary category. Find the right financial advisor for your situation before you make a withdrawal decision that's difficult to undo.

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References

Rules described reflect final IRS regulations issued July 19, 2024, generally applicable to distribution calendar years beginning on or after January 1, 2025. Individual circumstances vary, and beneficiaries should confirm their specific obligations with a tax professional or the IRA custodian.