For many families, the most common advice about inherited retirement accounts is now outdated. Following it could cost your heirs a 25% IRS penalty.
The Advice Many Families Still Believe
When a parent passes away and leaves an IRA, many adult children hear the same advice:
“You have 10 years. Just leave it alone and take it all out at the end.”
For some beneficiaries, that still works. For many others, it no longer does.
The rules have been clarified, the grace period is over, and the penalty for getting it wrong is real. Whether you’ve already inherited an account, expect to someday, or are planning what you’ll leave behind, here’s what you need to know.
The Problem: A 10-Year Clock, and Sometimes a Yearly Requirement Too
The 10-year rule
Under the SECURE Act, when an IRA owner dies after 2019, most beneficiaries must empty the inherited account by December 31 of the year containing the 10th anniversary of the owner’s death.
If your parent passed away in 2025, for example, the account must be fully withdrawn by December 31, 2035.
The part most people miss
Whether you must also take money out every year depends on one key question:
Had the owner reached their required beginning date for RMDs?
The required beginning date is the date an account owner must start taking required minimum distributions (RMDs). For people who reach age 73 after 2022, it’s generally April 1 of the year after they turn 73.
- If the owner died before that date: Most beneficiaries on the 10-year rule have no yearly requirement. They simply need to empty the account by the end of year 10.
- If the owner died on or after that date: Under the IRS final regulations, most beneficiaries on the 10-year rule must take a withdrawal every year in years 1 through 9, and empty whatever is left by the end of year 10.
Why many families didn’t know
The IRS provided temporary penalty relief for certain missed required minimum distributions (RMDs) from inherited IRAs for 2021 through 2024. The final regulations generally apply beginning in 2025, so affected beneficiaries should ensure they meet the applicable annual withdrawal requirements.
What it can cost
If you miss a required withdrawal, the IRS can charge an excise tax of 25% of the amount you should have taken. That drops to 10% if the shortfall is corrected in a timely manner, generally within two years.
The Solution: Know Which Rule Applies to You
Not every beneficiary follows the same rules. Your requirements depend on your relationship to the owner and whether the owner had reached their required beginning date.
| Your situation | What’s generally required |
|---|---|
| Surviving spouse who is the sole beneficiary | The most flexibility, including the option to treat the account as your own IRA or roll it into your own IRA |
| Eligible designated beneficiary: the owner’s minor child, a disabled or chronically ill individual, or someone not more than 10 years younger than the owner | Generally may take withdrawals over their life expectancy instead of following the 10-year rule |
| Most other individual heirs (such as adult children), owner died BEFORE their required beginning date | Empty the account by the end of year 10. No yearly withdrawal is required before then |
| Most other individual heirs, owner died ON OR AFTER their required beginning date | Yearly withdrawals in years 1 through 9, and empty the account by the end of year 10 |
A few important notes:
- Minor children: The life expectancy option applies only until the child reaches the age of majority, which the final regulations set at 21. After that, the 10-year rule applies to the remaining balance.
- Inherited Roth IRAs: The 10-year deadline still applies to most non-spouse beneficiaries, but because Roth IRA owners are never required to take RMDs during their lifetime, yearly withdrawals within the 10 years are generally not required.
- Trusts and estates: When the beneficiary is an estate or certain trusts rather than an individual, different rules apply.
- Workplace plans: Inherited 401(k), 403(b), and similar plan accounts follow similar federal rules, but the plan’s own documents determine which payout options are available. Check with the plan administrator.
The Mechanism: How the Yearly Withdrawal Works
How the amount is figured
When yearly withdrawals are required, the amount is generally the account’s December 31 balance from the prior year, divided by a life expectancy factor from the IRS Single Life Expectancy Table.
For most non-spouse beneficiaries:
- You find the factor for your age in the year after the owner’s death.
- In each later year, you subtract one from that starting factor.
- When the owner died on or after their required beginning date, the calculation may use the owner’s remaining life expectancy instead, if that’s longer than yours.
A hypothetical example
This example is for education only.
- Situation: Denise’s father passed away in 2025 at age 78. He had already reached his required beginning date and was taking RMDs. Denise is an adult daughter, more than 10 years younger than her father, and the sole beneficiary. She turns 55 in 2026.
- Account balance on December 31, 2025: $400,000
- IRS life expectancy factor for age 55: 31.6
- Her 2026 required withdrawal: $400,000 ÷ 31.6 = $12,658
- Deadline: December 31, 2026
- If she misses it: A 25% excise tax of about $3,165, or about $1,266 if corrected in a timely manner
- Next year: Her 2027 factor would be 30.6 (31.6 minus 1), applied to the December 31, 2026 balance
- Final deadline to empty the account: December 31, 2035
Other rules worth knowing
- The year of death matters too. If the owner died on or after their required beginning date and hadn’t taken their full RMD for that year, the beneficiaries are responsible for taking it.
- You can always take more. Beneficiaries can withdraw more than the minimum, or even the entire account, at any time. Taking extra one year does not reduce the required amount for future years.
- Withdrawals from inherited traditional IRAs are generally taxable. They’re generally included in your income as ordinary income in the year you receive them.
- No 10% early withdrawal penalty. Distributions made to a beneficiary because of the owner’s death are an exception to the 10% additional tax on withdrawals before age 59½, regardless of the beneficiary’s age.
Why timing can matter
If you inherit while you’re still working, every withdrawal is added on top of your regular income. Waiting until year 10 and withdrawing a large balance all at once could create a significant increase in your taxable income for that single year. Spreading withdrawals across several years may create a more manageable tax picture, depending on your situation.
There’s no single right strategy. The best approach depends on your income, your tax bracket, your goals, and the size of the account.
What to Do Before December 31
If you’ve inherited an IRA
- Find out whether the original owner had reached their required beginning date. This determines whether yearly withdrawals apply to you.
- Confirm your beneficiary category. Surviving spouse, eligible designated beneficiary, or the 10-year rule.
- Check whether a 2026 withdrawal is due. If so, plan to take it before December 31.
- Review last year. If you missed a required 2025 withdrawal, talk with a tax professional promptly. Correcting the shortfall in a timely manner can reduce the excise tax from 25% to 10%, and the IRS may waive it entirely if the shortfall was due to reasonable error and you’re taking steps to fix it.
- Map out the full 10 years. Know your final deadline, and plan your withdrawals with your taxes in mind.
If you’re planning what you’ll leave behind
- Review your beneficiary designations. Make sure every account names the people you intend.
- Talk with your heirs. A short conversation now can prevent costly mistakes later.
- Consider how your account types affect your family. Traditional and Roth accounts are taxed differently for the people who inherit them.
Your Legacy Deserves a Plan, Not a Surprise
You spent a lifetime building what you’ll pass on. The rules that govern how your family receives it deserve the same care.
Your retirement plan doesn’t end with you. It continues with the people you love.
If you’ve inherited a retirement account, or you want to make sure your own accounts pass to your family the way you intend, let’s talk it through.
Book your complimentary 10-minute, one-to-one Wealth Clarity Call:
We’ll look at where you stand and help you see your next step with clarity.
This article is for educational purposes only and does not constitute individual tax, legal, or investment advice. Inherited account rules depend on your relationship to the account owner, the type of account, the owner’s age and date of death, and other individual factors. Please consult a qualified tax professional before making decisions about inherited accounts.
