Inheriting a retirement account feels like a windfall, but the tax clock starts immediately, and the rules have quietly gotten harsher. Most non-spouse beneficiaries must now empty an inherited traditional IRA within 10 years, and depending on the original owner's age, they may also owe annual required minimum distributions along the way. Misreading either rule can trigger a painful tax bill or an IRS penalty.
How the 10-Year Rule Works
For most non-spouse beneficiaries of owners who died after 2019, the entire inherited IRA balance must be withdrawn by December 31 of the tenth year following the year of death. Unlike the old "stretch IRA," you cannot spread distributions across your own lifetime.
- The deadline: full distribution by the end of year 10.
- Annual RMDs sometimes apply: if the owner had already begun taking RMDs, heirs must take yearly distributions in years one through nine, then empty the rest by year 10.
- No step-up in basis: traditional IRA dollars are taxed as ordinary income when withdrawn.
Why Waiting Until Year 10 Backfires
It is tempting to let the account grow and withdraw everything at the deadline. But a single large distribution can push you into a much higher tax bracket, inflate Medicare premiums, and cost more than spreading withdrawals evenly across the decade. For many heirs, taking steady annual distributions smooths the tax hit.
Beneficiaries Who Escape the 10-Year Rule
Certain "eligible designated beneficiaries" are exempt and may still stretch distributions over life expectancy.
- Surviving spouses, who have additional rollover options.
- Minor children of the owner, until they reach the age of majority.
- Disabled or chronically ill individuals.
- Beneficiaries not more than 10 years younger than the deceased.
Inherited Roth IRAs Differ
Inherited Roth IRAs also fall under the 10-year rule, but qualified withdrawals are tax-free, so the strategy flips: heirs often let a Roth grow tax-free and withdraw near the deadline.
A Distribution Strategy That Works
The goal is to withdraw the balance without ever spiking into a much higher bracket. A common approach is to estimate your available room in each bracket and take roughly level distributions across the decade, filling lower brackets first. Years when your other income dips, such as a gap between jobs or early retirement, are ideal for larger withdrawals. Timing distributions around these income valleys can save thousands compared with a lump sum in year 10.
- Front-load withdrawals in low-income years to use up cheaper brackets.
- Watch thresholds that raise Medicare premiums and trigger the net investment income tax.
- Track the deadline carefully, since missing a required distribution carries a penalty.
The Bottom Line
Map out a distribution schedule the year you inherit, coordinate it with your other income, and confirm whether annual RMDs apply to your situation. Because the interaction of these rules is complex and penalties for missed distributions are steep, consult a tax professional before choosing a withdrawal plan.