Inherited IRAs and the 10-Year Rule

If you've inherited an IRA or 401(k) from a parent or grandparent, the rules you've heard about from friends — or read in older articles — may no longer apply. The SECURE Act eliminated the "stretch IRA" for most adult beneficiaries, and IRS regulations finalized in 2024 added annual withdrawal requirements that many heirs don't expect.

Getting this right matters. An inherited retirement account is often the largest single asset a young heir receives, and the timing of withdrawals can change the total tax bill by tens of thousands of dollars. Here's how the rules work and how to use them to your advantage. For the bigger picture, see our complete guide to what to do with an inheritance.

First: Which Type of Beneficiary Are You?

The SECURE Act sorts beneficiaries into three groups, and your group determines your deadline.

If you're an adult child or grandchild, you're almost certainly in the middle group. (The minor-child exception applies only to the account owner's own children — not grandchildren.) The rest of this guide focuses on designated beneficiaries.

How the 10-Year Rule Works

The entire account must be withdrawn by December 31 of the 10th year after the year the owner died. If your parent died in 2026, for example, the account must be empty by December 31, 2036. Within that window, you can generally withdraw as much as you want, whenever you want — but whether you must also take money out every year depends on one question.

Do You Have to Take Annual Withdrawals?

It depends on whether the original owner had reached their required beginning date (RBD) — generally April 1 of the year after they turned 73, or 75 for people born in 1960 or later.

• If the owner died before their RBD: No annual withdrawals are required. You can take money out on any schedule, as long as the account is empty by the end of year 10.
• If the owner died on or after their RBD: You must take an annual required minimum distribution (RMD) in years one through nine, calculated using IRS life expectancy tables — and still empty the account by the end of year 10.

Two related details. If your parent hadn't taken their full RMD for the year they died, the remaining amount still has to come out — and as the beneficiary, that's your responsibility. And if you miss a required withdrawal, the IRS imposes a 25% excise tax on the shortfall, reduced to 10% if you correct it promptly. You can also request a waiver for reasonable cause on Form 5329.

Inherited Roth IRAs

Inherited Roth IRAs follow the same 10-year deadline, with two important differences. First, there are no annual RMDs during the 10 years: Roth owners are never required to take distributions during their lifetime, so they're always treated as having died before their required beginning date. Second, withdrawals are tax-free as long as the Roth had been open for at least five years, counting from the original owner's first contribution.

For most heirs, that makes the strategy simple: let an inherited Roth IRA grow tax-free for as long as possible, and withdraw it near the end of year 10.

A Worked Example: Why Timing Matters

Consider Sarah, 32, who earns $85,000 a year and inherits a $400,000 traditional IRA from her mother. Her mother was 77 and already taking RMDs when she died in 2026, so Sarah must take annual withdrawals starting in 2027 and empty the account by the end of 2036.

Hypothetical illustration assuming a constant 6% annual return and 2026 federal tax brackets for a single filer. It does not represent any actual investment, and actual results will vary.

Taking only the minimums keeps Sarah's taxes low for nine years — then forces a withdrawal of roughly $600,000 in a single year, much of it taxed in the 35% and 37% federal brackets. Spreading withdrawals evenly on top of her salary would keep her in the 24% bracket at today's rates. Her best plan may land somewhere in between: withdrawing more in lower-income years and less in higher ones.

Strategies to Reduce the Tax Bill

• Fill lower brackets on purpose. Rather than taking only the minimum, consider withdrawing enough each year to fill your current tax bracket without spilling into the next one.
• Front-load in low-income years. Years in graduate school, between jobs, on parental leave, or early in your career are often the cheapest years to take distributions. If you expect your income to rise, withdrawing more sooner can make sense.
• Watch income-based thresholds. Withdrawals raise your adjusted gross income, which can affect student loan payments under income-driven repayment, financial aid eligibility, ACA health insurance subsidies, and whether you can contribute directly to a Roth IRA.
• Use withdrawals to fund your own accounts. You can't contribute to an inherited IRA, but you can use withdrawals to cover living expenses while you raise your own 401(k) contributions — effectively shifting money from an account with a deadline into one without.
• Consider your state. If you're planning a move from a high-tax state to one with no income tax, it may pay to time larger withdrawals for after the move.
• Invest for the window you have. An inherited IRA has a defined horizon. How it's invested should reflect when you actually expect to withdraw the money.

Getting the Mechanics Right

• Use a direct transfer. Non-spouse beneficiaries can't use 60-day rollovers. If the custodian sends you a check, that's a taxable distribution. Move the money by direct trustee-to-trustee transfer instead.
• Title the account correctly. An inherited IRA should identify both the original owner and you as beneficiary — for example, "Jane Smith, deceased, IRA for the benefit of John Smith." Each custodian has its own format.
• Split shared accounts. If you inherited an account with siblings, it can typically be divided into separate inherited IRAs, so each of you can choose your own withdrawal strategy.
• Name your own beneficiaries. If you die before the account is empty, your beneficiaries inherit what's left — but they must still finish withdrawals by the original 10-year deadline.
• Know that 401(k)s work similarly. Some employer plans require faster payouts than the law does. In most cases, you can move an inherited 401(k) into an inherited IRA by direct rollover, which typically offers more investment choices and flexibility.

What If the IRA Was Left to a Trust?

Some parents name a trust as the beneficiary of a retirement account to provide oversight for younger heirs. In that case, the trustee — not you — controls withdrawals, and the timeline depends on how the trust is drafted. One important consideration: income retained inside a trust is taxed at compressed rates, reaching the top federal bracket at a small fraction of the income that applies to individuals. If you're the beneficiary of a trust that holds an inherited IRA, ask the trustee how withdrawals will be handled and taxed.

The Bottom Line

The 10-year rule sets a deadline, but within it you have a great deal of flexibility. The heirs who come out ahead treat that flexibility as a planning opportunity — rather than cashing out right away or waiting for a giant year-10 tax bill.

For the full picture — taxes, trusts, and building a plan for everything you've received — read our guide to what to do with an inheritance.

This article is for general educational purposes only and is not tax, legal, or investment advice. Tax laws change frequently, and how they apply depends on your circumstances. Consult a qualified professional before acting.