Inherited IRA Rules: IRS Requirements for Beneficiaries

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The IRS rules for an inherited IRA depend on three facts: who you are in relation to the person who died, when they died, and whether they had already reached the age at which they had to start required minimum distributions (RMDs). If the owner died in 2020 or later and you are not a spouse or another “eligible designated beneficiary,” you generally must empty the account by December 31 of the 10th year after the year of death. If the owner had already passed their required beginning date, you must also take annual withdrawals along the way. Spouses, minor children, disabled or chronically ill beneficiaries, and beneficiaries not more than 10 years younger than the owner can still stretch withdrawals over their life expectancy. Withdrawals from an inherited traditional IRA are taxed as ordinary income. Withdrawals from an inherited Roth IRA are generally tax-free. The 10% early withdrawal penalty does not apply to any of them.

Which beneficiary category you fall into

Since the SECURE Act, the tax code sorts beneficiaries into three groups, and your group sets the distribution schedule.

Eligible designated beneficiaries

An eligible designated beneficiary (EDB) is an individual named on the account who falls into one of these categories:

• Surviving spouse of the account owner.
• Minor child of the owner. This covers the owner’s own child, not a grandchild, until the child reaches the age of majority, which the IRS final regulations set at 21.
• Disabled individual, as defined in the tax code.
• Chronically ill individual, as defined in the tax code.
• An individual not more than 10 years younger than the owner, such as a sibling close in age, a partner who was not a spouse, or a friend.

EDBs can take distributions over their own life expectancy instead of emptying the account within 10 years. Annual RMDs generally must begin by December 31 of the year after the owner’s death. When the owner died before their required beginning date, an EDB can usually elect the 10-year rule instead, depending on the IRA’s terms.

The minor child exception is temporary. Once the child turns 21, the 10-year clock starts, and the remaining balance must be withdrawn by the end of the 10th year after that birthday.

Designated beneficiaries

A designated beneficiary is any individual named on the account who does not qualify as an EDB. Adult children, grandchildren, nieces, nephews, and friends more than 10 years younger than the owner usually land here. This group is subject to the 10-year rule.

Non-designated beneficiaries

Estates, charities, and trusts that do not qualify as “see-through” trusts are not individuals, so they are non-designated beneficiaries. Their schedule depends on when the owner died:

• Owner died before the required beginning date: the five-year rule applies, and the account must be emptied by December 31 of the fifth year after the year of death.
• Owner died on or after the required beginning date: distributions continue over the owner’s remaining single life expectancy, as if the owner were still alive.

A trust that meets the IRS requirements for a see-through trust can be treated as if its individual beneficiaries inherited directly, so their status can determine the schedule. The beneficiary designation form on file with the custodian decides who inherits an IRA, not the will. If no beneficiary was named, or every named beneficiary died first, the account usually passes to the estate and falls into this least flexible group.

How the 10-year rule works

Under the 10-year rule, the inherited IRA must reach a zero balance by December 31 of the 10th calendar year after the year the owner died. If the owner died at any point in 2024, for example, the deadline is December 31, 2034. The count starts on January 1 of the year after death, so the real window is somewhat longer than 10 years from the date of death itself.

The rule applies to both traditional and Roth inherited IRAs. It also applies whether the owner died before, on, or after their required beginning date. What changes with that date is whether you must take money out in years one through nine.

Annual RMDs depend on the owner’s required beginning date

The required beginning date (RBD) is April 1 of the year after the owner reaches RMD age. That age was 70½ before 2020, 72 after the SECURE Act of 2019, and 73 starting January 1, 2023, under SECURE 2.0. It is scheduled to rise to 75 on January 1, 2033.

• Owner died before the RBD: no annual withdrawals are required during the 10 years. You can take nothing until year 10, take everything in year one, or anything in between, as long as the account is empty by the deadline.
• Owner died on or after the RBD: you must take an annual RMD in years one through nine, based on your life expectancy, and then empty whatever remains in year 10. The logic is that distributions had already begun and cannot slow down once the account passes to a beneficiary.

A Roth IRA owner is always treated as having died before the required beginning date, because original Roth owners never have to take RMDs. Non-spouse Roth beneficiaries on the 10-year rule therefore have no annual minimum. They only face the year-10 deadline.

Penalty relief for 2021 through 2024

When the SECURE Act took effect, many beneficiaries and custodians read the 10-year rule as having no annual requirement. Proposed regulations later said annual RMDs apply when the owner died on or after the RBD, so the IRS waived the penalty through 2024 for beneficiaries on the 10-year rule who skipped those distributions. Annual RMDs under this part of the rule apply starting in 2025. The relief did not extend the 10-year deadline.

Special rules for surviving spouses

A surviving spouse has more options than any other beneficiary. A spouse who is the sole beneficiary can choose among three paths. A spouse who shares the account with other beneficiaries generally cannot treat it as their own until the shares are split into separate accounts.

Treating the IRA as your own or rolling it over

The spouse can elect to treat the inherited IRA as their own, or roll the money into an existing IRA in their name. Either way, the account is then handled as if the spouse had always owned it:

• RMDs are based on the spouse’s own age and start at the spouse’s own RMD age. This is often useful when the deceased spouse was older, because it delays distributions.
• An inherited Roth treated as the spouse’s own has no RMDs during the spouse’s lifetime.
• The spouse can name new beneficiaries, who will later inherit under the rules that apply to them.

The trade-off is that withdrawals before age 59½ become subject to the 10% early distribution penalty unless another exception applies, because the money is no longer an inheritance. A spouse who takes a distribution and wants to roll it into their own IRA has 60 days to complete the rollover. A required minimum distribution cannot be rolled over. A spouse can also roll over part of the account and leave the rest in an inherited IRA.

Remaining a beneficiary

A spouse can instead keep the account as an inherited IRA. The main advantages:

• No 10% penalty. Distributions from an inherited IRA are death distributions, so a spouse under 59½ can withdraw without the penalty. Ordinary income tax still applies to traditional IRA money.
• Delayed start if the owner died before the RBD. The spouse does not have to begin RMDs until the year the deceased spouse would have reached RMD age. This helps when the deceased spouse was younger, since their RMD age arrives later than the surviving spouse’s would.
• Recalculated life expectancy. A spouse beneficiary looks up a new life expectancy factor each year in the Single Life Expectancy Table (Table I in Appendix B of IRS Publication 590-B). Non-spouse EDBs use a fixed schedule that drops by one each year, so the spouse’s annual minimums shrink more slowly as a share of the balance.

If the owner had already reached the RBD, the spouse beneficiary generally must take annual RMDs starting the year after death. These can be based on either the spouse’s life expectancy or the deceased owner’s remaining life expectancy, whichever is longer.

Choosing between them

The age gap and the spouse’s need for cash drive the decision. A younger spouse who may need money before 59½ often stays a beneficiary first to keep penalty-free access, and can elect to treat the account as their own later, for example after reaching 59½. An older surviving spouse, or one who does not need the money, often benefits from treating the account as their own sooner, using their own RMD age and the Uniform Lifetime Table, which produces smaller minimums than the single life table.

Inheriting an IRA from a parent

Opening the right account. A non-spouse beneficiary cannot roll an inherited IRA into their own IRA or add contributions to it. The money should move by direct trustee-to-trustee transfer into an inherited IRA titled in the owner’s name for your benefit. If the custodian pays the funds to you and you deposit them in your own IRA, the IRS treats the entire amount as a taxable distribution, and non-spouse beneficiaries cannot undo it with a 60-day rollover. Inherited 401(k) money can generally be moved by direct rollover into an inherited IRA.

Minor and young beneficiaries. Grandchildren do not qualify for the minor child exception and fall under the 10-year rule from the start. Distributions belong to the child, not the parent, so an 18-year-old who withdraws from an inherited IRA reports that income on their own return. Inherited IRA distributions count as unearned income, though. For children under 19, and full-time students under 24 whose earned income does not cover more than half their support, the “kiddie tax” can tax unearned income above an annual threshold at the parent’s marginal rate, so timing withdrawals across tax years matters.

How to calculate an inherited IRA RMD

Annual RMDs apply to EDBs taking life expectancy payments, and to designated beneficiaries on the 10-year rule when the owner died on or after the RBD. The basic formula:

1. Find the account balance on December 31 of the previous year.
2. Find your life expectancy factor. For the first distribution year, which is the year after the owner’s death, look up your age on your birthday that year in Table I of Publication 590-B. In each later year, non-spouse beneficiaries subtract 1 from the prior year’s factor instead of looking up a new one. Spouse beneficiaries look up a new factor each year.
3. Divide the balance by the factor. The result is the minimum you must withdraw by December 31.

If the owner died on or after the RBD, you use the longer of your own life expectancy and the owner’s remaining life expectancy. In practice this matters only when the beneficiary is older than the owner.

The year of death is separate. If the owner had to take an RMD in the year they died and had not taken it yet, the beneficiary must take the remainder, the amount the owner would have been required to withdraw. Your own schedule starts the following year.

Example

In this hypothetical example, a father dies at age 80, well past his required beginning date. His 52-year-old daughter is the sole beneficiary of his traditional IRA. She is more than 10 years younger and not otherwise an EDB, so she is a designated beneficiary on the 10-year rule with annual RMDs.

• Year of death: her father had not yet taken that year’s RMD, so she withdraws the amount he would have had to take.
• Year 1: the December 31 balance is $400,000. Assume, for illustration, that her Table I factor for that year’s age is 30.0. Her RMD is $400,000 ÷ 30.0 = $13,333.
• Year 2: her factor becomes 29.0. If the December 31 balance is $410,000, her RMD is $410,000 ÷ 29.0 = $14,138.
• Years 3 to 9: the factor keeps falling by one each year, and she takes at least the resulting minimum.
• Year 10: she withdraws whatever remains, whatever its size.

Annual minimums at these factors take out only a small share of the account each year. Unless she withdraws more than the minimum along the way, a large balance can be left for year 10, and all of it is taxable in that single year. If her father had died before his RBD, she would have had no annual requirement at all, only the year-10 deadline.

Inherited Roth IRAs

Inherited Roth IRAs follow the same beneficiary categories and deadlines. The difference is taxes.

• Distribution schedule. Non-spouse beneficiaries on the 10-year rule must empty the Roth by the end of year 10 with no annual RMDs. EDBs can take life expectancy distributions. A spouse can treat the Roth as their own and avoid RMDs during their lifetime.
• Taxes. Distributions are tax-free if the Roth’s five-year period has been met. That period is measured from January 1 of the year the owner first contributed to any Roth IRA, and the owner’s years count toward it. Contributions can always be withdrawn tax-free. If the period has not been met, earnings withdrawn are taxable, but the 10% penalty does not apply. Beneficiaries close to that line can wait until the period is complete before taking earnings.

Because tax-free growth continues and no annual minimum applies, a non-spouse beneficiary often leaves an inherited Roth untouched until near the deadline. With a traditional IRA, the same wait can push a large taxable balance into one year.

How inherited IRA distributions are taxed

Inheriting an IRA is not itself income. Tax is due when money comes out.

Traditional, SEP and SIMPLE IRAs. Distributions are ordinary income in the year you receive them, taxed at your own rate. A large withdrawal can push you into a higher bracket and raise your adjusted gross income, which can affect eligibility for certain credits or deductions. No 10% early withdrawal penalty applies, whatever your age.

Basis from nondeductible contributions. If the person who died made nondeductible (after-tax) contributions, the IRA has basis, and part of each distribution is tax-free. The beneficiary inherits that basis. You track it on Form 8606 filed for the inherited IRA, kept separate from any basis in your own IRAs. The owner’s past Forms 8606, or the estate’s records, show the starting figure. Without them, you may end up paying tax on money that was already taxed.

Reporting. The custodian issues Form 1099-R with the death distribution code, which tells the IRS the 10% penalty does not apply.

Withholding. Custodians withhold 10% for federal income tax from one-time IRA withdrawals by default. You can choose a different rate, or none, on Form W-4R. For a sizable distribution, check whether 10% covers the actual tax, or adjust withholding or estimated payments to avoid an underpayment penalty.

Estate tax and the income in respect of a decedent deduction. An IRA counts as part of the owner’s estate for federal estate tax, so the same dollars can be taxed twice: in the estate and again as income when withdrawn. The beneficiary can deduct the share of federal estate tax attributable to the IRA as an itemized deduction for income in respect of a decedent. It is not subject to the 2%-of-AGI floor, but it is available only if you itemize.

State taxes. States set their own rules on taxing retirement distributions, and some states have inheritance taxes. Your state of residence when you take distributions determines the state income tax.

Ways to reduce the tax on an inherited IRA

A traditional inherited IRA has no full tax escape, because those dollars were never taxed. What beneficiaries can control is the timing, which often affects the bracket the money is taxed in.

• Avoid a lump sum unless you need it. Cashing out the full account at once puts the entire balance into one tax year. Spreading withdrawals across the available window usually keeps more of it in lower brackets.
• Plan the 10 years deliberately. If you have no annual RMDs, you can withdraw more in low-income years, such as a gap between jobs, a sabbatical or early retirement, and less in high-income years. If you do have annual RMDs, you can still take more than the minimum when your income is low, so year 10 does not carry a huge balance.
• Qualified charitable distributions. A beneficiary who is 70½ or older can send money directly from an inherited IRA to a qualified charity. The transfer counts toward the RMD and is excluded from income, though no charitable deduction is allowed on top. The annual limit began at $100,000 and is now indexed for inflation.
• Disclaim if you do not need it. A beneficiary can refuse an inheritance with a qualified disclaimer, generally within nine months of the death and before accepting any of the assets. The account then passes to the next beneficiary in line as if you had died first. This can move money to a family member in a lower bracket or to someone who qualifies as an EDB.

A non-spouse beneficiary cannot convert an inherited traditional IRA to a Roth. The most effective moves happen before death, such as naming individual beneficiaries rather than the estate and converting traditional money to Roth at the owner’s own tax rate.

Deadlines and penalties to track

Several dates apply in the first year or two after a death:

• December 31 of the year of death: take any remaining RMD the owner had not taken for that year.
• September 30 of the year after death: the IRS identifies the final beneficiaries as of this date. Anyone who disclaims or is paid out in full before then drops out of the calculation.
• December 31 of the year after death: the deadline to split an account among multiple beneficiaries into separate inherited IRAs. Each beneficiary can then use their own category and life expectancy. This matters when a spouse or another EDB shares an account with a beneficiary subject to the 10-year rule. It is also the usual start date for RMDs for beneficiaries who must take them.

If you miss an RMD, the IRS imposes a 25% excise tax on the amount you should have withdrawn. SECURE 2.0 cut this from 50%. The tax drops to 10% if you take the missed distribution and file a corrected return within the correction window. The window opens when the tax is imposed, usually January 1 after the year of the missed distribution. It closes at the earliest of these dates:

• The date the IRS mails a notice of deficiency
• The date the IRS assesses the tax
• The last day of the second taxable year after the tax is imposed

You report the shortfall on Form 5329. The IRS can also waive the tax entirely if the shortfall came from reasonable error and you are taking steps to fix it.

Rules for owners who died before 2020

The SECURE Act applies to deaths after December 31, 2019. If the owner died before 2020, the earlier rules remain in place. A designated beneficiary of any age could stretch distributions over their life expectancy, which let children and grandchildren draw down inherited IRAs over decades. Beneficiaries already on a stretch schedule keep it. One exception: when that original beneficiary dies, the next beneficiary, sometimes called a successor beneficiary, generally has to empty the account within 10 years under the new rules.

FAQs

The Bottom Line

Anyone named on an IRA should first confirm their beneficiary category, since it sets the withdrawal schedule and the deadlines that apply. Beneficiaries on the 10-year rule with a traditional IRA usually pay less tax by spreading withdrawals across low-income years instead of leaving a large balance for year 10. Surviving spouses should weigh their age gap and their need for cash before choosing whether to treat the account as their own.