Direct answer: Inherited IRA rules were fundamentally changed by the SECURE Act (2019) and SECURE 2.0 (2022). For non-spouse beneficiaries who inherit from someone who died after December 31, 2019, the primary rule is the 10-year rule: the entire inherited IRA must be distributed within 10 years of the original owner's death. For accounts inherited from someone who had already begun required minimum distributions, the IRS has clarified that annual distributions are also required in years 1 through 9. Spouses have significantly more flexibility, including treating the IRA as their own.
Scenario: Inheriting an IRA
Key Takeaways
- Non-eligible designated beneficiaries (most non-spouse adult children, siblings, friends) who inherit an IRA after 2019 must fully distribute the account within 10 years of the original owner's death; there is no option to stretch distributions over the beneficiary's lifetime.
- If the original owner died after their required beginning date (the date RMDs were supposed to start), non-eligible beneficiaries must also take annual distributions in years 1 through 9 (in addition to the 10-year full distribution requirement), based on IRS proposed guidance.
- Eligible designated beneficiaries (surviving spouses, minor children of the original owner, disabled or chronically ill individuals, and beneficiaries less than 10 years younger than the original owner) may still use the stretch IRA rules (distributing over their life expectancy).
- Surviving spouses have the most flexibility: they can roll the inherited IRA into their own IRA (deferring distributions until their own RMD age), treat the IRA as an inherited IRA (no 10% early withdrawal penalty for distributions before 59.5), or keep it as an inherited IRA and switch to their own IRA later.
- Roth IRA beneficiary rules: non-spouse beneficiaries of inherited Roth IRAs also face the 10-year rule, but distributions are tax-free (Roth accounts have no income tax on qualified distributions), making it generally optimal to delay distributions until year 10 to maximize tax-free compounding.
Eligible vs. Non-Eligible Designated Beneficiaries
The SECURE Act created two categories of designated beneficiaries. Eligible designated beneficiaries (EDBs) retain the pre-2020 stretch option and include: surviving spouses; minor children of the account owner (until they reach the age of majority, then the 10-year rule applies); disabled individuals (meeting IRS definition); chronically ill individuals; and individuals not more than 10 years younger than the original owner (a sibling who is 5 years younger, for example). Non-eligible designated beneficiaries (NEDBs) must follow the 10-year rule. This is the most common category for inherited IRAs passing to adult children.
The 10-Year Rule: Practical Planning
For a NEDB inheriting a $500,000 traditional IRA, they must distribute the entire balance within 10 years (calendar years, not 12-month periods). If the original owner had already started RMDs, the IRS has proposed that the beneficiary must also take annual distributions in years 1 through 9 (based on the beneficiary's life expectancy from IRS single life tables), with the remaining balance distributed by end of year 10. Tax planning for a $500,000 traditional IRA inherited by a 45-year-old in the 22% bracket: spreading $50,000 distributions over 10 years adds $50,000 to taxable income each year (manageable) rather than taking the full $500,000 in one year and potentially pushing into the 32% to 35% bracket. Roth conversions of IRA assets over several years before death can eliminate the inherited IRA tax liability entirely.
Surviving Spouse Options
A surviving spouse who inherits an IRA has three choices. Treat as own IRA: roll the inherited IRA into the survivor's own IRA; the survivor's own IRA rules apply, including their own RMD starting age (73 or 75). This is typically optimal if the surviving spouse is over 59.5 and has no near-term need for distributions without penalty. Treat as inherited IRA: keep it as an inherited IRA, taking distributions under the life-expectancy stretch rules; this preserves the ability to take penalty-free distributions before 59.5 (useful if the surviving spouse is under 59.5). Elect spousal rollover later: initially treat it as an inherited IRA, then roll it into the survivor's own IRA when they turn 59.5, combining the early distribution flexibility with the eventual benefit of the survivor's own IRA treatment.
Roth IRA Inheritance Strategy
Inherited Roth IRAs are subject to the same 10-year rule for non-spouse beneficiaries, but with a critical difference: distributions from a Roth IRA are tax-free if the original owner had the Roth for at least 5 years (the 5-year rule). For a beneficiary facing the 10-year rule on an inherited Roth IRA: the optimal strategy is typically to take distributions only in year 10 (or spread them evenly if there is a non-tax reason to access the money earlier), allowing the account to compound tax-free for the maximum period before the required distribution. There is no income tax on the qualified Roth distributions, so the timing decision is purely about compounding duration.
Frequently Asked Questions
What happens if I miss an inherited IRA required minimum distribution?
Missing an RMD from an inherited IRA incurs a 25% excise tax on the amount that should have been distributed (reduced to 10% if corrected within 2 years). The IRS has waived penalties for certain inherited IRA RMDs during the transition period following the SECURE Act, as guidance was being clarified; check current IRS guidance for any penalty relief still in effect. To correct a missed RMD, distribute the missed amount as soon as possible and file Form 5329 with the IRS to report the missed RMD and pay any applicable excise tax.
Can I disclaim an inherited IRA?
Yes. A beneficiary can disclaim (refuse) an inherited IRA within 9 months of the original owner's death, causing the IRA to pass to the next beneficiary in the sequence (typically designated on the account). A disclaimer is irrevocable: you cannot take distributions from the account first and then disclaim. Disclaimers are used when the primary beneficiary (a high-income adult child) wants the IRA to pass to a lower-income beneficiary (a grandchild or younger sibling) who would pay less tax on the distributions. Consult an estate attorney before disclaiming.
How do I split an inherited IRA among multiple beneficiaries?
An IRA with multiple named beneficiaries should be split into separate inherited IRAs (one per beneficiary) by December 31 of the year following the original owner's death; each beneficiary then uses their own life expectancy for RMD calculations (if they are EDBs). If the account is not split by this deadline, the RMD calculation uses the oldest beneficiary's life expectancy, which may be shorter and require higher distributions. Splitting the account also allows each beneficiary to make their own timing and distribution decisions independently.