Inherited IRAs and the 10-Year Rule

It is the SECURE Act requirement that most beneficiaries of an IRA or workplace plan whose owner died after December 31, 2019 withdraw the entire balance within ten years (IRS). Precisely, the account must be empty by December 31 of the year containing the tenth anniversary of the owner’s death: an owner who died in 2026 leaves a deadline of December 31, 2036 (IRS Publication 590-B).

Before 2020, any individual beneficiary could “stretch” an inherited IRA over their own life expectancy. A 50-year-old heir took out less than 3% a year and could let the rest compound for decades. The 10-year rule ended that for most adult children and grandchildren, and it concentrates the tax on inherited IRAs into their highest-earning years.

Three categories of beneficiary are treated differently, and knowing which one each of your heirs falls into is the starting point for any plan:

• Eligible designated beneficiaries can still use life expectancy payments. They are defined in the next section.
• Other designated beneficiaries, meaning any other individual named on the form, and qualifying see-through trusts, follow the 10-year rule.
• Non-designated beneficiaries, such as your estate, a charity or a trust that fails the see-through rules, follow the older rules: five years if you died before your required beginning date, or your own remaining life expectancy if you died after it.

Beneficiaries are fixed as of September 30 of the year after the year of death (IRS Publication 590-B). Between the death and that date, a beneficiary can disclaim, or a charity’s share can be paid out, so that the remaining heirs are assessed on their own. That window is useful but narrow; getting the form right while you are alive is far better.

Five kinds of “eligible designated beneficiary,” judged as of the date of death: your surviving spouse, your child who has not reached the age of majority, a disabled individual, a chronically ill individual, and any individual not more than 10 years younger than you (IRS Publication 590-B). The final regulations set the age of majority at 21 and define “child” to include stepchildren, adopted children and eligible foster children (T.D. 10001, 2024).

The “not more than 10 years younger” category matters for couples who are not married and for people leaving an IRA to a sibling. It does not help most children, who are typically 25 to 35 years younger than their parents. Disability and chronic illness must be documented to the plan or custodian, and the rules follow the tax code’s existing definitions; this is an area where an estate attorney earns the fee.

When the owner died on or after the required beginning date, the April 1 after the year the owner reached RMD age. In that case the final regulations require the beneficiary to take a distribution in each of years one through nine and empty the account in year ten (IRS Notice 2024-35). Treasury’s reasoning was that distributions, once started, should not stop for up to nine years (T.D. 10001). If the owner died before the required beginning date, no annual distributions are required; the beneficiary can take any amount at any time, as long as the account is empty by the deadline.

The annual amount is the prior year-end balance divided by the beneficiary’s single life expectancy from the IRS Single Life Table, set in the year after death and reduced by one each year. If the owner’s own remaining life expectancy is longer, that is used instead (IRS Publication 590-B). In the year of death itself, the beneficiaries must take whatever part of the owner’s RMD the owner had not yet taken.

This rule was the subject of years of confusion. Proposed regulations in 2022 surprised heirs who had assumed nothing was due until year ten, and the IRS waived the penalty for missed annual amounts for 2021 through 2024 in a series of notices. The final regulations apply from 2025, so 2026 is the second year in which these amounts are enforced. An heir who inherited in 2020 or 2021 still faces the original deadline; the waivers did not extend it.

Missing a required amount triggers a 25% excise tax on the shortfall, reduced to 10% if you take the missed amount and report the tax within a correction window that generally runs through the second year after the year the tax arose (IRS Publication 590-B).

That depends less on the rules than on how they pace the withdrawals. Frank, a widower, dies in 2026 at 80, well past his required beginning date, with $1,200,000 in a traditional IRA. He had not yet taken his 2026 RMD of $59,406 (his year-end balance divided by the Uniform Lifetime Table factor of 20.2), so his children take it before December 31. They split the rest into two inherited IRAs, each worth about $600,000 at the end of 2026. Splitting by the end of the year after death lets each child use their own life expectancy.

Mark is a teacher; his household income is $150,000. We compared two ways he might handle his share. The first takes only the required minimum each year, about $15,000 rising to $23,000, and then must withdraw the remaining $716,000 in 2036. The second takes a level $74,000 a year, which empties the account on schedule.

Waiting withdraws more in total, because the account grows longer, but the final-year lump sum puts Mark in the 37% bracket and raises the tax on his inheritance from 22.0% to 28.5% of what he takes out. Level withdrawals keep every dollar in his 22% bracket. Anne, a surgeon already in the 32% bracket, has less room to manage: her rate is high either way. Her better lever is timing. If she retires at 58 or 59, taking larger amounts after her salary stops, and before the deadline, could lower her rate considerably.

Tax deferral inside the inherited IRA is worth something, so the right answer for an heir is not always “level.” It is to fill a bracket each year: take enough to use the room in your current bracket, more in low-income years, and never let the final year become the largest. Our Tax Bracket Calculator shows how much room there is.

The 10-year deadline still applies to most heirs, but there are no annual withdrawals and, in most cases, no tax. The regulations treat a Roth IRA owner as having died before the required beginning date, because Roth owners never have lifetime RMDs (T.D. 10001; IRS Publication 590-B). A non-spouse heir can leave the account untouched for ten years and withdraw everything at the end.

Distributions to a beneficiary are tax-free if the Roth IRA had been open for five years, counted from January 1 of the year the owner first funded any Roth IRA. If the owner opened the Roth late, the heir may need to wait until that five-year point before taking earnings, but contributions and converted amounts come out first and tax-free.

The difference between the two kinds of account is large. With careful pacing, Mark’s $600,000 of traditional IRA yields about $577,000 after federal tax, spread over ten years, before any growth on what he reinvests in a taxable account. The same $600,000 in a Roth could sit untouched for ten years, grow to about $977,000 at 5%, and come out tax-free. That is why Roth conversions are one of the strongest legacy tools available to parents in lower brackets than their children.

A spouse who is the sole beneficiary can treat the IRA as their own, roll it into their own IRA, or keep it as an inherited IRA (IRS). Treating it as your own is usually best for an older spouse: RMDs follow your own age and the Uniform Lifetime Table, and you can name new beneficiaries. Remaining a beneficiary can be better for a spouse under 59½, because distributions to a beneficiary are not subject to the 10% early-withdrawal tax, or for a younger spouse whose deceased partner was older and had not reached RMD age, since distributions can then wait until the deceased would have reached it.

The spouse’s choice also sets up the next generation. When the surviving spouse later dies, the children inherit from the survivor, and most will be under the 10-year rule. For a couple, this is the moment to plan the whole sequence: the survivor’s single-filer brackets, the survivor’s RMDs, and then the children’s ten years. Our guide to Roth conversions before RMDs shows how the survivor’s narrower brackets change the conversion math.

By deciding who pays the tax on your IRA, and at what rate, while you still control it. Five approaches do most of the work.

Talk to your children about it. An heir who knows that an IRA is coming, that annual withdrawals may be required and that a lump sum in year ten is expensive will make better choices in a stressful year. Our Estate Planning Worksheet helps list accounts and beneficiaries in one place, and estate planning basics covers the documents. For lifetime gifts, see gifting to children and grandchildren.

Only when you need control that a direct designation cannot give: a minor or young adult, a beneficiary with a disability who relies on means-tested benefits, an heir with creditor or spending problems, or a blended family where you want a spouse supported and the remainder to go to your children. A trust adds cost and complexity, and it can raise the tax bill.

To use the beneficiary payout rules at all, a trust must be a “see-through” trust: valid under state law, irrevocable at your death, with identifiable beneficiaries, and with the required documentation given to the custodian (IRS Publication 590-B). The final regulations then distinguish two designs (T.D. 10001):

A married couple reaches 37% at $768,700 of taxable income in 2026; a trust reaches it at $16,000. An accumulation trust holding a large traditional IRA can therefore cost heirs a great deal of tax, which makes Roth money the better asset to leave in trust. Trusts written before 2020 often assume the old stretch rules, so if your estate plan names a trust as an IRA beneficiary, have it reviewed.

Move slowly and use direct transfers. A non-spouse heir cannot roll an inherited IRA into their own IRA or put money back once it is withdrawn; the only way to move it is a trustee-to-trustee transfer to an inherited IRA titled in the deceased owner’s name for your benefit (IRS Publication 590-B). A check made out to you is a taxable distribution.

• Find out whether the owner had reached the required beginning date, and whether the year-of-death RMD was taken.
• Establish your category: eligible designated beneficiary, 10-year rule with annual RMDs, or 10-year rule without them.
• If there are several beneficiaries, split the account into separate inherited IRAs by December 31 of the year after death.
• Ask whether the owner made nondeductible contributions; that basis carries over and is not taxed again.
• Write a ten-year withdrawal plan that fills your bracket each year and front-loads low-income years.
• Set a calendar reminder for each year’s RMD, and have tax withheld or pay estimates.

If the estate was large enough to owe federal estate tax, you may also be able to deduct the estate tax attributable to the IRA when you withdraw it; Publication 590-B covers this “income in respect of a decedent” deduction. Our RMD Calculator handles owner RMDs, and the retirement withdrawal order guide shows how an inherited IRA fits with your own accounts.