For years, inheriting a parent's IRA was one of the quieter gifts in estate planning. You could stretch distributions over your own lifetime, letting the account grow tax-deferred for decades. That era is over.
The SECURE Act of 2019 eliminated the stretch IRA for most non-spouse beneficiaries, replacing it with a 10-year rule that requires the entire account to be depleted within a decade of the original owner's death.[^1] For five years, the IRS issued a series of waivers that let beneficiaries skip annual distributions without penalty while the agency finalized its regulations. That grace period ended in 2024. Starting in 2025, the rules are fully in effect, and the penalties for getting this wrong are significant.[^2]
If you inherited an IRA after January 1, 2020, this article is for you.
Why This Matters Right Now
We are in the early stages of the largest intergenerational wealth transfer in American history. Baby boomers are expected to pass an estimated $84 trillion in assets to heirs over the coming decades, and a substantial portion of that wealth sits in tax-deferred retirement accounts.[^3] Millions of Americans are now inherited IRA beneficiaries, many of whom have never had to think carefully about RMD rules before.
The problem is that the 10-year rule is not as simple as it sounds. There are two very different versions of it, and which one applies to you depends on a single fact: whether the original account owner had already started taking required minimum distributions (RMDs) before they died.
The Two Versions of the 10-Year Rule
Version 1: The owner died before their Required Beginning Date
The Required Beginning Date is April 1 of the year after the owner turned 73.[^4] If the person you inherited from died before reaching that date (meaning they had not yet been required to take RMDs), then you face a simpler version of the rule: no annual distributions are required, but the entire account must be emptied by December 31 of the tenth year following the year of death.[^5]
This version gives you flexibility. You can take nothing for nine years and withdraw everything in year ten, or you can spread distributions however you like across the decade. The only hard deadline is the final year.
Version 2: The owner died on or after their Required Beginning Date
If the original owner had already started taking RMDs, the rules are more demanding. You must take annual RMDs in years one through nine, calculated using the IRS Single Life Expectancy Table based on your age, and then withdraw the remaining balance by the end of year ten.[^6]
This is the version that caught many beneficiaries off guard. The IRS waived penalties for missed annual RMDs from 2020 through 2024 while it finalized regulations, but those waivers are gone. Beginning with the 2025 tax year, failing to take your required annual distribution will trigger a 25% excise tax on the amount you should have withdrawn.[^7]
Who Is Exempt: Eligible Designated Beneficiaries
Not everyone is subject to the 10-year rule. The SECURE Act created a category called "eligible designated beneficiaries" who can still use the old stretch IRA rules. There are five groups:[^8]
| Beneficiary Type | Rule That Applies |
|---|---|
| Surviving spouse | Can treat as own IRA or use stretch rules |
| Minor child of the deceased (until age 21) | Stretch rules apply; 10-year rule kicks in at age 21 |
| Disabled individual (as defined by IRS) | Stretch rules apply |
| Chronically ill individual | Stretch rules apply |
| Person not more than 10 years younger than the deceased | Stretch rules apply |
The Tax Problem Nobody Plans For
Here is where the inherited IRA becomes a planning challenge rather than a windfall.
Every dollar you withdraw from an inherited traditional IRA is taxed as ordinary income in the year you take it.[^9] If you inherit a $500,000 IRA and withdraw it all in year ten, you could easily push yourself into the 32% or 37% federal bracket for that year, on top of your regular income. The account that looked like a gift becomes a significant tax event.
The smarter approach is to plan distributions strategically across the full ten years, taking amounts in years when your taxable income is lower, coordinating with Roth conversions in your own accounts, and being mindful of how the distributions interact with your marginal rate.
A few specific scenarios worth thinking through:
If you are still working: Your income is likely near its peak. Taking large distributions now compounds the tax hit. Consider taking only the minimum required (if Version 2 applies to you) and planning for larger distributions after you retire or in lower-income years.
If you are approaching retirement: The window between when you stop working and when Social Security and RMDs from your own accounts begin is often the lowest-income period of your financial life. That window may be the ideal time to accelerate inherited IRA distributions.
If the inherited account is a Roth IRA: The 10-year rule still applies, but qualified distributions are tax-free.[^10] The strategy shifts from tax minimization to maximizing tax-free growth, which generally means letting the account grow as long as possible and taking the full balance in year ten.
What to Do If You Missed Distributions in Prior Years
The IRS waived penalties for missed inherited IRA RMDs for tax years 2020 through 2024.[^11] That means beneficiaries who were subject to Version 2 (annual distributions required) but did not take them during those years are not penalized retroactively. However, the 10-year clock was not paused. If you inherited an IRA in 2020, your deadline is still December 31, 2030, regardless of whether you took distributions in the early years.
If you missed a required distribution in 2025 or later, you will need to file IRS Form 5329 and pay the 25% excise tax, unless you can demonstrate reasonable cause for the shortfall and request a waiver. The IRS has historically been willing to waive the penalty for first-time mistakes when the beneficiary acts promptly to correct the missed distribution.
The Bottom Line
The inherited IRA 10-year rule is now fully in effect, and the stakes for getting it wrong are real. Whether you face annual distribution requirements depends on when the original owner died relative to their Required Beginning Date. Either way, the tax planning opportunity is significant: the difference between a thoughtful distribution strategy and a reactive one can easily amount to tens of thousands of dollars over the decade.
If you have inherited an IRA and have not yet mapped out a distribution plan, now is the time. The decisions you make in the early years of the 10-year window will shape the tax outcome at the end.
References
[^1]: Internal Revenue Service. "Required Minimum Distributions for IRA Beneficiaries." Updated November 2025. https://www.irs.gov/retirement-plans/required-minimum-distributions-for-ira-beneficiaries
[^2]: Fidelity Investments. "Inherited IRA Withdrawals: Beneficiary RMD Rules & Options." 2025. https://www.fidelity.com/retirement-ira/inherited-ira-rmd
[^3]: Bankrate. "The Great Wealth Transfer." Updated June 2025. https://www.bankrate.com/investing/the-great-wealth-transfer/
[^4]: Internal Revenue Service. "Publication 590-B (2025), Distributions from Individual Retirement Arrangements." 2026. https://www.irs.gov/publications/p590b
[^5]: Charles Schwab. "Inherited IRA Rules & SECURE Act 2.0 Changes." October 2025. https://www.schwab.com/learn/story/inherited-ira-rules-secure-act-20-changes
[^6]: Ascensus. "The 10-Year Rule is Here to Stay." March 2025. https://thelink.ascensus.com/articles/2025/3/17/the-10-year-rule-is-here-to-stay
[^7]: CNBC. "Inherited IRAs Have a Key Tax Change for 2025. What to Know." October 2025. https://www.cnbc.com/2025/10/24/inherited-iras-change-2025.html
[^8]: Charles Schwab. "Inherited IRA Rules & SECURE Act 2.0 Changes." October 2025. https://www.schwab.com/learn/story/inherited-ira-rules-secure-act-20-changes
[^9]: Internal Revenue Service. "Retirement Plan and IRA Required Minimum Distributions FAQs." https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs
[^10]: Vanguard. "RMD Rules for Inherited IRAs." 2025. https://investor.vanguard.com/investor-resources-education/retirement/rmd-rules-for-inherited-iras
[^11]: Ameritas. "Navigating Beneficiary IRA RMD Rules: Critical Changes for 2025." November 2025. https://www.ameritas.com/insights/navigating-beneficiary-ira-rmd-rules-critical-changes-for-2025/
Jason Rindskopf is the founder of Two Waters Wealth Management and creator of the SMART Retirement Blueprint®. He works with high-achieving professionals and couples in the Charlotte, NC area who are within 10 years of retirement or recently retired. If you'd like to talk through your inherited IRA distribution planning, book a complimentary consultation here.
