Inherited IRAs have been in the news of late. Whether you are planning to leave your IRA to someone or you receive someone’s IRA, planning includes understanding the legislative rules that will apply.
The Secure Act of 2019 mandated that certain heirs must withdraw all money from an inherited IRA within 10 years of the original account holder’s death. Before this rule, those who inherited an IRA could slowly withdraw the money over their remaining lifetime, which was a boon for heirs who wanted to keep taxes low from year to year.
According to the IRS, there are three types of non-spouse beneficiary options: eligible designated beneficiaries, designated beneficiaries, and beneficiaries that are not individuals, such as a trust.
Image by Arek Socha from Pixabay
Beneficiaries
An “eligible designated beneficiary” has at least one of the following three characteristics:
- They are the spouse or minor child of a decedent
- They are chronically ill or disabled, and
- They are not more than 10 years younger than the IRA owner
If you are in one of these three categories, you are still allowed to stretch the withdrawals beyond the 10-year rule. There are also special rules for surviving spouses. Spouses who inherit an IRA have more flexibility than non-spousal beneficiaries regarding when they must withdraw the funds.
The spouse can treat the IRA as their own, designating themselves as the account owner. The spouse can also roll it over into their own, pre-existing IRA. Finally, they can treat themselves as the account beneficiary.
Rules on Inherited IRAs?
10-year rule: Unless you’re a surviving spouse, a minor child, have a disability or are chronically ill, or are a person less than 10 years younger than the retirement account owner, you’ll have to empty an inherited individual retirement account (IRA) within 10 years, even if it’s a Roth IRA.
Heirs can withdraw more than the required amount each year. If you inherit an IRA, you are generally required to take distributions from the account, which may be taxable. Taxation depends on the type of IRA involved and the relationship of the beneficiary to the deceased.
How Beneficiary RMDs are Determined
The IRS provides guidance about RMDs (Required Minimum Distributions). This is important!
You cannot keep retirement funds in your account indefinitely. You generally have to start taking withdrawals from your IRA, SIMPLE IRA, SEP IRA, or retirement plan account when you reach age 73.
You’re not required to take withdrawals from Roth IRAs, or from Designated Roth accounts in a 401(k) or 403(b) plan while the account owner is alive. However, beneficiaries of Roth IRAs or Designated Roth accounts are subject to the required minimum distribution rules.
Your RMD is the minimum amount you must withdraw from your account each year.
- You can withdraw more than the minimum required amount.
- Your withdrawals will be included in your taxable income except for any part that was taxed before (your basis) or that can be received tax-free (such as qualified distributions from designated Roth accounts).
Required Beginning Date for your First RMD
If the original owner of a traditional IRA account had started taking annual RMDs, you’ll have to continue the annual withdrawal, too. The RMD must be taken by the end of the calendar year so, the 2025 distribution had to have been made by Dec. 31, 2025. If the original owner hadn’t started taking RMDs, then the beneficiary isn’t required to take annual ones either.
Since Roth IRAs don’t require RMDs, beneficiaries don’t have to take them.
- IRAs (including SEPs and SIMPLE IRAs)
- April 1 of the year following the calendar year in which you reach age 73.
- 401(k), profit-sharing, 403(b), or other defined contribution plan
Generally, April 1 following the later of the calendar year in which you:- reach age 73, or
- retire (if your plan allows you to delay taking your RMD until retirement).
See the chart comparing IRA and defined contribution plan RMDs.
What if I Miss the RMD Deadline?
If you miss a RMD, you could face a 25% penalty on the amount that should have been withdrawn, the IRS said. The penalty can be reduced to 10% “if the RMD is timely corrected within two years,” the IRS said.
How are Inherited Retirement Accounts Taxed?
- Any amount withdrawn, including RMDs, from an inherited, traditional IRA is taxed as ordinary income. An RMD could push beneficiaries into higher tax brackets, especially if multiple years’ worth of withdrawals need to be taken in a short period.
- The rules for inheriting an individual retirement account (IRA) when the owner dies are complicated, but one aspect is straightforward: When the owner dies, the current tax law allows the inheritance, or the account balance, to be accepted tax-free.
Consult with an Expert
When it comes to this topic of inherited IRAs, I suggest you consult with a knowledgeable financial professional for your unique situation. These rules are tricky, and you will be best served by a guide who understands the tax implications for your situation, whether you are giving or receiving!
It’s crazy that everything has an “if, then” clause, isn’t it? This is why I wish we had a “life administrative success” class (or many) in school and throughout life.
I seek to continually highlight topics we may face during life and explain what I’ve uncovered for you. Be aware, and seek guidance when you’re unsure. That’s what I do!
If you’d ever like to discuss your situation, click on Book a Time with Lynn for a complimentary 30-minute Zoom with me. For you pre-planners, my book is a resource you might enjoy. The 2026 edition of Living Planner What to Prepare Now While You Are Living © is being printed! Check it out HERE.
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Happy March! Lynn
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