Inherited IRAs Under the 10-Year Rule: What Heirs Must Do and When

Most people who inherit an IRA from someone other than a spouse must empty the account by December 31 of the tenth year after the owner's death. Under final IRS regulations issued in July 2024, many of those heirs must also take annual required minimum distributions in years one through nine, beginning in 2025, if the original owner had already reached their required beginning date. Spouses and a few other "eligible designated beneficiaries" keep better options. The penalty for missing a required distribution is a 25 percent excise tax, reduced to 10 percent if corrected promptly.

How did the SECURE Act change inherited IRAs?

Before 2020, most beneficiaries could "stretch" an inherited IRA over their own life expectancy, taking small distributions for decades while the balance compounded tax-deferred. The SECURE Act of 2019 ended that for most heirs. For deaths after December 31, 2019, a designated beneficiary who is not in a protected category must distribute the entire account within 10 years.

The open question for several years was whether heirs also had to take annual distributions inside that window. The IRS answered in final regulations published July 19, 2024: yes, in many cases. Because the guidance arrived slowly, the IRS waived penalties for missed annual distributions for 2021 through 2024 in a series of notices, most recently Notice 2024-35. The waiver did not stop the 10-year clock; it only excused the annual payments. Annual RMDs became mandatory in 2025.

Who must take annual RMDs within the 10 years?

The dividing line is whether the original owner died before or after their required beginning date, which is April 1 of the year after turning 73 under current law.

If the owner died on or after that date, a non-eligible designated beneficiary must take annual RMDs in years one through nine, calculated on the beneficiary's single life expectancy, and still empty the account by the end of year ten. The regulations apply the long-standing principle that distributions, once begun, must continue at least as rapidly.

If the owner died before the required beginning date, no annual RMDs are required; the only obligation is full distribution by December 31 of year ten. Inherited Roth IRAs always fall in this category, because Roth owners are treated as dying before their required beginning date. That makes the inherited Roth the cleanest case: no annual minimums, and the smart move is often to leave it growing tax-free until late in the window.

One trap for heirs of 2020 through 2023 deaths: the penalty waivers did not reset anything. An IRA inherited in 2020 from an owner past his required beginning date had annual RMDs resume in 2025 and still must be empty by December 31, 2030.

Who escapes the 10-year rule?

The SECURE Act preserved life-expectancy treatment for eligible designated beneficiaries. There are five categories: a surviving spouse; the owner's minor child, but only until age 21, when the child's own 10-year clock starts; a disabled individual; a chronically ill individual; and any beneficiary not more than 10 years younger than the owner, which covers many siblings and partners.

A surviving spouse has the most flexibility. She can roll the account into her own IRA and treat it as hers, delay distributions until her own RMD age, or remain a beneficiary, which can be useful when she is under 59 and a half and may need penalty-free access. SECURE 2.0 added the option for a spouse to elect treatment as the deceased owner for RMD purposes, which can reduce required distributions. Choosing among these paths is fact-specific and worth modeling before any paperwork is filed.

How should heirs plan the tax bill across the decade?

The 10-year rule converts an inheritance into a tax-timing problem. Every dollar out of a traditional inherited IRA is ordinary income, so the question is which of the ten years should absorb it.

Consider a hypothetical: an heir in her peak earning years inherits a $1,000,000 traditional IRA in 2026 from a parent who died before his required beginning date. If she waits and takes the entire balance, grown to perhaps $1.6 million, in year ten, most of it lands in the 37 percent federal bracket on top of her salary, and the one-year income spike can also trigger the 3.8 percent net investment income tax on her portfolio income and higher Medicare premiums later. If instead she withdraws roughly $130,000 to $160,000 per year, filling her current bracket without breaching the next one, a substantial share of the account may come out at lower marginal rates. The difference can run well into six figures of tax. This example is hypothetical and ignores state tax and investment variability, but the principle holds: deliberate annual bracket-filling usually beats both extremes of "minimum only, lump at the end" and "cash it all now."

Other levers interact with the schedule. Years with low income, a sabbatical, retirement before Social Security, or large charitable deductions are good years to accelerate inherited IRA income. Heirs expecting their own RMDs or deferred compensation to begin mid-decade may prefer to front-load. The sequencing logic is the same one we describe in tax-smart withdrawal sequencing, and heirs who also hold their own pre-tax IRAs sometimes pair inherited IRA drawdowns with the analysis in our Roth conversion article, since both compete for the same bracket space. Note that an inherited IRA itself cannot be converted to a Roth by a non-spouse.

What about trusts named as beneficiaries?

When a trust inherits an IRA, the results depend on whether it qualifies as a see-through trust and whether it is a conduit or accumulation trust. Conduit trusts push every distribution out to the beneficiary, which forces the full 10-year payout into the beneficiary's hands regardless of what the trust drafter intended. Accumulation trusts can hold distributions back, but income retained inside a trust hits the top 37 percent federal bracket at a very low threshold, around $16,000 of trust income.

Many trusts drafted before 2020 assumed a lifetime stretch and now behave badly under the 10-year rule. If your estate plan names a trust as an IRA beneficiary, have it reviewed against the final regulations, and consider who will administer the payout schedule; our article on choosing between a corporate trustee and a family member covers that decision.

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Frequently asked questions

Do I have to take money out every year from an inherited IRA?It depends. If the original owner died on or after their required beginning date, yes, annual RMDs apply in years one through nine starting in 2025, plus full distribution by year ten. If the owner died before that date, or the account is a Roth, only the year-ten deadline applies.

I inherited an IRA in 2021 and have taken nothing. Am I in trouble?Probably not for past years; the IRS waived penalties on missed annual RMDs for 2021 through 2024. But your 10-year deadline is still December 31, 2031, and annual RMDs, if applicable, resumed in 2025.

Can I roll an inherited IRA into my own IRA?Only a surviving spouse can. Non-spouse beneficiaries must keep the money in a properly titled inherited IRA and cannot make new contributions or convert it to a Roth.

What is the penalty for missing a required distribution?A 25 percent excise tax on the amount not taken, reduced to 10 percent if you correct the shortfall within the IRS correction window.

Does the 10-year rule apply to my spouse?No. A surviving spouse is an eligible designated beneficiary and can roll the account over, treat it as their own, or stretch distributions over life expectancy.

When should I take more than the minimum?Generally in years when your marginal rate is unusually low, such as early retirement, a low-income year, or a year with large deductions. Modeling all ten years at once usually reveals a better schedule than deciding annually.