Inheriting an IRA: What Beneficiaries Need to Know About the 10-Year Rule and RMDs

How your relationship to the owner and the owner’s RMD status decide when the money has to come out

If you inherited a Traditional IRA from someone who died after 2019, I'll be honest with you: the rules probably aren't what you expect.

The SECURE Act changed how many inherited retirement accounts have to be paid out. Today, two things drive almost everything: who inherited the account, and whether the original owner had already started taking required minimum distributions (RMDs).

In some cases, a surviving spouse still has the most flexibility. In others, the money has to come out within 10 years. And in a few special situations, a beneficiary can still spread payments over their life expectancy.

One thing doesn't change no matter which rule applies: money you take out of an inherited Traditional IRA is taxable income to you.

Let me walk you through the main rules in plain language so you can see what may apply to your situation.

First, Who Inherited the IRA?

The biggest factor is what type of beneficiary you are. There are three general buckets:

• Surviving spouse
• Eligible designated beneficiary
• Everyone else

An eligible designated beneficiary is someone in one of these protected categories:

• A disabled individual
• A chronically ill individual
• Someone not more than 10 years younger than the IRA owner
• The IRA owner's minor child

An eligible designated beneficiary can generally take distributions over their own life expectancy. If the owner had already started RMDs, they can use the longer of their own life expectancy or the owner's remaining life expectancy. If the owner died before RMDs began, they can also choose the 10-year rule instead.

If you don't fit one of those categories, you're usually in the "everyone else" group, and the 10-year rule applies.

Surviving Spouse Options

If you inherited the IRA from your spouse and you're the sole beneficiary, you have more choices than anyone else. A surviving spouse can generally:

• Treat the IRA as your own, with distributions based on your age
• Keep it as an inherited IRA, with distributions generally starting for the year your spouse would have reached RMD age
• Roll eligible amounts into your own IRA under the normal rollover and distribution rules

Treating the IRA as your own is often the most flexible choice. The account becomes part of your own retirement plan, and future distributions follow the rules that apply to you.

Keeping it as an inherited IRA can make sense in some situations, especially for a younger spouse. Because it's an inherited account, you can take money out before age 59½ without the 10% early withdrawal penalty. Whether that helps depends on your age, income, and tax picture.

A surviving spouse also has extra flexibility if the deceased spouse had already started RMDs. You can continue distributions under the inherited IRA rules or choose to treat the account as your own, depending on the facts.

Eligible Designated Beneficiaries

Some beneficiaries get more favorable treatment than the standard 10-year rule. Here's a closer look at each group:

• Disabled individuals. A disabled person who inherits an IRA may be able to spread distributions over their life expectancy instead of emptying the account in 10 years.
• Chronically ill individuals. A chronically ill beneficiary can also qualify for these special rules.
• Individuals close in age to the owner. If you're not more than 10 years younger than the person who died, you may qualify too. This often covers siblings and close friends near the owner's age.
• The owner's minor child. A minor child of the IRA owner qualifies, but only for a while. The favorable treatment lasts until the child turns 21. After that, the 10-year rule kicks in for the remaining balance.

Everyone Else: The 10-Year Rule

If you're not a surviving spouse and don't qualify as an eligible designated beneficiary, the inherited IRA is generally subject to the 10-year rule. The entire account has to be distributed by the end of the 10th year after the year of death.

For example, if the IRA owner died in 2020, the inherited IRA generally must be emptied by December 31, 2030.

A lot of people are surprised by this. For years, folks heard about the "stretch IRA," where heirs could spread withdrawals over their whole lifetime. For most beneficiaries today, the stretch is gone.

Does the Original Owner's RMD Status Matter?

Yes, a lot. You need to know whether the IRA owner died:

• Before their required beginning date for RMDs, or
• On or after that date, once RMDs had already begun

If the owner died before RMDs began: If you're on the 10-year rule, you don't have to take a set amount each year. You can take money out whenever you want, as long as the account is empty by the end of year 10. That said, waiting and taking it all at once in year 10 can push you into a much higher tax bracket, so spreading it out often makes sense.

If the owner died after RMDs began: This is the one that catches people. If you're on the 10-year rule, you must take an annual RMD in years 1 through 9 and empty the account by the end of year 10. Also, if the owner hadn't taken their own RMD for the year they died, that amount still has to come out, and it's up to the beneficiary to take it.

In short, before or after RMDs began is not a minor detail. It changes how the inherited IRA has to be handled.

What If There Are Multiple Beneficiaries?

Sometimes an IRA is left to more than one person. In that case, it's often important to split the account into separate shares, generally by December 31 of the year after the owner's death. When that's done properly, each beneficiary is treated as the sole beneficiary of their own share.

Why does that matter? Because one beneficiary may qualify for a better payout rule while another doesn't. Splitting the account lets each person use the rule that fits them.

What Are the Penalties If Required Distributions Are Missed?

If you miss a required distribution, the IRS can charge an excise tax of 25% of the amount you should have taken. If you fix the mistake quickly, generally within two years, the penalty drops to 10%.

Inherited IRAs have been especially confusing because the rules changed, and then the IRS spent several years clarifying what the 10-year rule actually required.

That's why so many beneficiaries worried about whether they needed to take money out every year or could just wait until year 10. Honestly, for a while, nobody could give them a firm answer.

Penalty Relief for the Uncertain Years

Here's the good news. The IRS provided penalty relief for certain missed annual RMDs during the years when the inherited IRA rules were unsettled. That relief covered 2021 through 2024.

So if you inherited an IRA and weren't sure whether you had to take a distribution in one of those years, you were likely protected from the penalty.

Here's the part you need to hear, though: that relief is over. The IRS finalized its rules in 2024, and starting in 2025, beneficiaries on the 10-year rule whose owner died after RMDs began must take their annual RMDs. The relief also didn't extend the 10-year deadline itself. Your clock still runs from the year of death.

If you inherited an IRA in this situation and didn't take a 2025 distribution, don't panic, but don't wait either. Fixing it promptly can keep the penalty low, and in some cases the IRS will waive it entirely if you show reasonable cause.

Practical Examples

Here are a few simple examples to show how this plays out.

Example 1: Surviving spouse. Maria inherits her husband's IRA. As the surviving spouse and sole beneficiary, she can treat the IRA as her own or keep it as an inherited IRA. That gives her flexibility in how and when she takes money out.

Example 2: Disabled adult child. James inherits his mother's IRA and is disabled. He may qualify as an eligible designated beneficiary, which can give him better payout options than the 10-year rule.

Example 3: Adult child who isn't an eligible designated beneficiary. Tina inherits her father's IRA. She's an adult and doesn't qualify as disabled, chronically ill, or any other eligible category. She'll be on the 10-year rule and must empty the account by the end of the 10th year after her father's death. If her father had already started his RMDs, Tina also has to take an annual distribution along the way.

Example 4: Minor child. Evan inherits his father's IRA at age 12. As the owner's minor child, he gets special treatment until he turns 21. After that, the remaining balance falls under the 10-year rule.

What to Do If You've Inherited an IRA

If you inherited a Traditional IRA from someone who died after 2019, here are the most important steps:

• Identify your beneficiary type: spouse, eligible designated beneficiary, or everyone else.
• Find out when the owner died relative to their RMD start date: before RMDs began, or after.
• Figure out whether annual distributions are required, especially for 2025 and later.
• Check whether penalty relief applies to any missed distributions from 2021 through 2024.
• Keep good records. These rules are technical, and records matter if the IRS ever asks questions.

Common Mistakes to Avoid

I see a few mistakes come up again and again:

• Assuming all inherited IRAs follow the same rule
• Forgetting that a surviving spouse has special choices
• Missing the difference between an eligible designated beneficiary and everyone else
• Ignoring whether the owner had already started RMDs
• Assuming the penalty relief still applies to 2025 and later
• Waiting until year 10 to take everything out and getting hit with a big tax bill all at once

The Bottom Line

If you inherited a Traditional IRA after 2019, the SECURE Act changed the rules in a big way.

A surviving spouse still has important options. Some beneficiaries, including disabled individuals, chronically ill individuals, people close in age to the owner, and the owner's minor children, may qualify for better treatment as eligible designated beneficiaries. Everyone else is usually on the 10-year rule.

When the owner died, and whether their RMDs had already started, matters too. The IRS gave penalty relief for the uncertain years of 2021 through 2024, but that relief has ended, and annual distributions are now enforced where they're required.

An inherited IRA is often one of the most meaningful things someone leaves behind. A little planning can help you honor that gift and keep more of it in your pocket instead of sending it to the IRS.

If you've inherited an IRA and aren't sure which rules apply to you, or you're worried you may have missed a distribution, let's talk. I can help you sort out your options, plan withdrawals to manage the tax hit, and fix any missed RMDs before they turn into a bigger problem. Call me at (314) 669-7300 or reach out through our contact page.