The Inherited IRA 10-Year Rule and How to Spread the Tax

For decades, inheriting an IRA was one of the best tax outcomes in the code. A 45-year-old who inherited a parent's $1 million IRA could stretch withdrawals over nearly forty years while the balance kept compounding tax-deferred. The SECURE Act ended that for most heirs. Under the inherited IRA 10-year rule, that same heir now has to empty the account within a decade, and every dollar comes out as ordinary income on top of their salary.

The rule hits high-income families hardest. A physician in her peak earning years who inherits a $1.5 million pre-tax IRA faces $150,000 or more of additional taxable income every year for ten years, at her top marginal rate. The inheritance arrives during the highest-earning decade, and the account must be drained before retirement would have offered lower brackets. Planning cannot make the tax disappear, but it can change how much is paid and when.

This article explains how the 10-year rule works after the IRS finalized its regulations in 2024, who is exempt, how annual distributions fit in, and the strategies available to both the heir and the original owner. It is educational, not tax or legal advice. Attend does not prepare tax returns or draft estate documents; we model these decisions and coordinate with your CPA and outside estate planning attorney.

How the Inherited IRA 10-Year Rule Works

The rule applies to retirement accounts inherited from someone who died in 2020 or later, including traditional and Roth IRAs, 401(k)s, and 403(b)s. A beneficiary who is a person, or a properly drafted see-through trust, and who does not qualify for an exception is a non-eligible designated beneficiary. That beneficiary must withdraw the full balance by December 31 of the tenth year after the year of death. Someone who inherits in 2026 has until the end of 2036.

What happens during the ten years depends on whether the original owner had reached their required beginning date, when the owner's own required minimum distributions had to start. That age is currently 73 for most people and rises to 75 for those born in 1960 or later. The IRS beneficiary RMD page lays out the rules.

If the owner died before that date, the heir has no annual requirement. The account can sit untouched for nine years and be emptied in year ten, or drawn down on any schedule. If the owner died on or after that date, the final regulations require annual distributions in years one through nine, calculated on the heir's own life expectancy, and then a full withdrawal in year ten. Because the IRS took years to finalize this point, it waived penalties for missed annual distributions from 2021 through 2024. The annual requirement has applied since 2025.

Roth accounts under the 10-year rule

Inherited Roth IRAs are also subject to the 10-year rule, but Roth owners are always treated as dying before their required beginning date, so heirs never have annual distribution requirements. Because withdrawals are tax-free, the best strategy is usually the opposite of the traditional IRA approach: leave the Roth alone for the full ten years to compound, then take everything out at the end.

The penalty for missing a distribution

Failing to take a required distribution, including the final year-ten withdrawal, triggers an excise tax of 25 percent of the shortfall, reduced to 10 percent if corrected within two years. The IRS can waive it for reasonable cause, but that requires a filing and an explanation.

Who Is Exempt: Eligible Designated Beneficiaries

Congress carved out five categories of eligible designated beneficiaries who can still stretch distributions over their life expectancy.

• Surviving spouses, who have the most flexibility of any beneficiary, described below.
• Minor children of the account owner, but only until they reach 21, when the 10-year clock starts. Grandchildren and other minors do not qualify.
• Disabled beneficiaries, under the strict Social Security definition of disability.
• Chronically ill beneficiaries, generally those unable to perform at least two activities of daily living for an extended period.
• Beneficiaries not more than ten years younger than the owner, typically a sibling, partner, or friend close in age.

Surviving spouse options

A spouse can roll the inherited account into their own IRA and treat it as their own, delaying distributions until their own required beginning date. A spouse under 59½ who may need the money can instead remain a beneficiary, which allows penalty-free withdrawals, and roll it over later. Since 2024, a spouse can also elect to be treated as the deceased owner for distribution purposes. Which path is best depends on the spouse's age, income needs, and other assets, and it is one of the first decisions we help with in a widowhood transition.

Non-designated beneficiaries

If the beneficiary is the estate, a charity, or a trust that does not qualify as see-through, there is no designated beneficiary at all. The account must be emptied within five years if the owner died before the required beginning date, or over the owner's remaining life expectancy if after. Naming your estate, or failing to name anyone, is a costly mistake. Our beneficiary designations audit walks through the checks.

Trusts as IRA Beneficiaries

Parents who want to leave retirement accounts to children without handing them a lump sum often name a trust as beneficiary. That still works, but the drafting matters more than ever. A see-through trust must be valid under state law, irrevocable at death, have identifiable beneficiaries, and have its documentation provided to the custodian. If it qualifies, the 10-year rule generally applies based on the beneficiaries' characteristics.

A conduit trust passes every distribution straight through to the beneficiary, who pays tax at their own rate. Under the 10-year rule, the entire account flows out within a decade, which defeats the purpose of using a trust to control access. An accumulation trust can hold distributions inside the trust, preserving control, but the trust pays tax at compressed brackets that reach the top federal rate at a very low income level. The choice is a trade-off between control and tax, and it belongs in a conversation among the attorney, the CPA, and the financial planner before the designation is signed.

Strategies for the Heir: Spreading the Tax

Once you have inherited a pre-tax account subject to the 10-year rule, the total tax is largely a function of the brackets your withdrawals land in. The goal is to keep as much of the money as possible out of your highest brackets.

Take roughly equal withdrawals

The default mistake is to wait until year ten and take everything at once, which stacks a decade of deferred income into a single year at the highest possible rate. For most heirs in a stable bracket, withdrawing about one tenth of the balance each year, adjusted for growth, produces the lowest total tax. Annual RMDs, when required, are usually smaller than one tenth, so the minimum is rarely the optimum.

Front-load into low-income years

If you expect a low-income year, take more. A sabbatical, a gap between jobs, a year of parental leave, or the first years of retirement before Social Security are all opportunities to pull inherited IRA money at a lower rate. Conversely, if you are a resident about to become an attending, taking less in the high year and more in the years around it can save tens of thousands of dollars. Our tax planning work is built around this kind of multi-year bracket management.

Use the withdrawals to fund your own tax-advantaged savings

Inherited IRA distributions cannot be rolled into your own IRA or converted to a Roth. But the cash can fund your own 401(k) contributions, backdoor Roth, HSA, or 529 plan, moving money from an account with a ten-year fuse into accounts that grow tax-advantaged for decades. Increasing your own pre-tax 401(k) deferrals in the same years also offsets part of the added income.

Strategies for the Original Owner

The most powerful planning happens before death, and it belongs to the account owner. If your children are high earners who will inherit a large pre-tax account, the 10-year rule means they will pay tax on it at their top rate. That reframes several decisions:

• Roth conversions during your retirement. Converting pre-tax balances in your lower-bracket years, before Social Security and RMDs push your income up, shifts the tax to you at a lower rate and leaves heirs an account they can hold tax-free for ten years. Our Roth conversion guide covers the mechanics.
• Spend pre-tax accounts first. Drawing on IRAs for your own retirement income, while leaving taxable accounts to receive a step-up in basis at death, often produces a better result for the family than the reverse.
• Leave pre-tax accounts to charity and other assets to family. A charity pays no income tax on an inherited IRA. Naming a charity as beneficiary of the pre-tax account and leaving appreciated stock or Roth assets to children can reduce the family's total tax substantially.
• Review trust designations. Trusts drafted before 2020 for stretch planning may now produce a poor result under the 10-year rule. Have your attorney revisit any trust named as a retirement account beneficiary.

Practical Steps When You Inherit

Do not take a lump-sum check from the custodian, which is fully taxable in the year received and cannot be undone. Instead, have the custodian retitle the account as an inherited IRA in the deceased owner's name for your benefit, or transfer it directly to an inherited IRA at a custodian of your choice. Confirm whether the deceased had taken their own required distribution for the year of death; if not, you must take it.

Then build the ten-year schedule. Identify whether annual distributions are required, project your income for each year, and set a withdrawal amount that keeps you out of the top brackets. Revisit the schedule every year as income changes. FINRA's investor resources offer additional background on inherited accounts, and the IRS page on required minimum distributions is the official reference for the deadlines.

The inherited IRA 10-year rule turned a slow, tax-efficient inheritance into a decade-long tax planning problem. For heirs, the answer is a deliberate withdrawal schedule tied to your own income. For account owners, the answer is to plan now, through Roth conversions, withdrawal order, and beneficiary choices, so the account you leave is one your family can afford to inherit.

Tony Colunga · Founder, Attend Wealth

Tony leads Attend Wealth, a fee-based wealth management firm in Atlanta serving professionals, families, physicians, and business owners. Advisory services are held to a fiduciary standard. More about Attend