The Inherited IRA 10-Year Rule: What You Owe the IRS Now

If you inherited a traditional IRA after 2019, the rules governing how and when you must withdraw that money changed dramatically — and as of 2025, the IRS stopped looking the other way. The grace period is over. Beneficiaries who have been waiting on those distributions, or who assumed they could take everything in year ten, may now be looking at a 25 percent excise tax on what they missed. Understanding exactly where you stand is the first step toward managing the tax impact thoughtfully.

How the Rules Changed — and Why It Matters Now

For decades, heirs could spread distributions from an inherited IRA across their own lifetime. That approach, often called the "stretch IRA," allowed a 40-year-old beneficiary to extend withdrawals — and the tax bill — across 40-plus years. The SECURE Act of 2019 ended that strategy for most non-spouse beneficiaries. Under the new framework, most heirs must empty an inherited account by December 31 of the tenth year following the original owner's death.

What many people missed — including experienced tax advisors — was a second layer of complexity buried in the final IRS regulations issued in July 2024. The 10-year deadline is not the only obligation. If the original account owner died after their Required Beginning Date (RBD) for RMDs, beneficiaries must also take annual required minimum distributions in years one through nine, in addition to fully depleting the account by year ten. The IRS waived penalties for missed annual RMDs from 2021 through 2024 while those regulations were being finalized. That waiver did not extend into 2025. The rules are now fully enforced.

A missed RMD or failure to empty the inherited account by year ten carries a 25 percent excise tax — reduced to 10 percent only if the error is corrected within two years.

Which Rule Applies to Your Situation

Your obligations depend on two things: your relationship to the original account owner, and whether they had already reached their Required Beginning Date at the time of death.

Surviving spouses have the most flexibility. A spouse can roll the inherited IRA directly into their own IRA, treating it as if they had always owned it — deferring RMDs until their own required age and contributing as normal. Alternatively, a spouse can keep it as a separate inherited IRA and take distributions based on their own life expectancy. Neither option is universally better; the right choice depends on the surviving spouse's age, income, and broader financial picture.

Eligible Designated Beneficiaries (EDBs) — a category that includes minor children of the deceased, disabled or chronically ill individuals, and anyone not more than ten years younger than the original owner — can still use the lifetime stretch. Annual RMDs are based on the IRS Single Life Expectancy Table, with the factor reduced by one each year.

Everyone else — most adult children and other named beneficiaries — falls under the 10-year rule. If the original owner died before their RBD, there are no annual minimums; beneficiaries can take distributions in any pattern they choose, as long as the account is empty by the deadline. If the original owner had already started taking their own RMDs (died after RBD), annual distributions in years one through nine are required, calculated by dividing the prior December 31 balance by the beneficiary's Single Life Table factor.

One important note on inherited Roth IRAs: they are also subject to the 10-year rule for non-spouse beneficiaries, but annual RMDs during years one through nine are not required — and qualified distributions remain tax-free. That asymmetry makes the timing of Roth distributions considerably more flexible, though the account still must be fully distributed by the end of year ten.

Why the Tax Impact Deserves a Coordinated Strategy

The compressed withdrawal timeline is, at its core, a tax problem. Pulling a large inherited IRA balance out over ten years — rather than a lifetime — means more dollars potentially landing in higher tax brackets in the same years you may already have significant earned income, Social Security benefits, or other retirement distributions. For first-generation wealth builders who have spent years carefully managing their tax exposure, an inherited IRA handled without a plan can quietly undo a lot of that work.

A few planning considerations worth examining with a qualified advisor:

• Distribution timing. Beneficiaries subject to annual RMDs still have some control over how much they take above the minimum each year. Taking more in lower-income years and less in high-income years can reduce overall tax exposure across the decade, though this requires projecting your income year-by-year and monitoring carefully.
• IRMAA exposure for Medicare beneficiaries. Large distributions from an inherited IRA raise your Modified Adjusted Gross Income, which could affect Medicare Part B and Part D premium surcharges in subsequent years. For 2026, the IRMAA first-tier threshold is $109,000 for single filers, based on 2024 income.
• Qualified Charitable Distributions. If you are 70½ or older, you may be able to make Qualified Charitable Distributions directly from an inherited IRA to a qualified charity — a strategy that can satisfy the annual distribution requirement without adding to taxable income.

The Bigger Picture for Women Navigating Inheritance

This rule change lands at a meaningful moment. The great wealth transfer is accelerating, and women stand to inherit a substantial share of it. Of an estimated $124 trillion expected to transfer by 2048, $54 trillion is projected to transfer to surviving spouses — 95 percent of whom are women, according to Bank of America estimates. Many of these transitions happen in the middle of grief, divorce, or other life disruptions — circumstances where it is easy for a missed deadline to go unnoticed until the tax penalty arrives.

Inherited wealth can be a genuine turning point, a chance to build intentionally on what a parent or spouse spent a lifetime accumulating. But that opportunity narrows considerably when the tax consequences aren't managed from the start. Knowing which rule applies to your inherited account, and building a withdrawal strategy around your full financial picture, is the work that protects what you've received.

If you've recently inherited an IRA — or expect to — and aren't sure where you stand, our team is glad to talk through the details with you.

Common questions

Do I have to take money out of an inherited IRA every year?

It depends on when the original account owner died. If they died before reaching their Required Beginning Date for RMDs, you have flexibility to distribute however you choose — including waiting — as long as the account is fully emptied by December 31 of the tenth year after their death. If the owner had already passed their RBD and you are not an eligible designated beneficiary, annual distributions in years one through nine are required, with full depletion by year ten.

What happens if I missed an inherited IRA distribution in 2025 or 2026?

A missed required minimum distribution from an inherited IRA carries a 25 percent excise tax on the amount that should have been withdrawn. That penalty drops to 10 percent if the missed distribution is corrected within two years. The IRS waived penalties for missed distributions from 2021 through 2024, but that waiver did not extend into 2025 or beyond.

Can a surviving spouse avoid the 10-year rule?

Yes. Surviving spouses are not subject to the 10-year rule in the same way other beneficiaries are. A spouse can roll the inherited IRA into their own IRA and treat it entirely as their own account, delaying RMDs until their own required age. Alternatively, they can keep it as a separate inherited IRA and take distributions over their own life expectancy. Each option has different tax and timing implications, so the better choice depends on the individual's age, income, and overall financial plan.

Sources

• IRS final regulations issued July 2024 require annual RMDs in years 1–9 when decedent died after their RBD, enforced starting 2025
• A 25% penalty applies to missed 2025 RMDs unless corrected; IRS waived penalties from 2021–2024
• $54 trillion projected to transfer to surviving spouses, 95% of whom are women
• IRMAA first-tier threshold for 2026 is $109,000 for single filers based on 2024 MAGI