Ask the Tax Editor, May 1: 10-Year Rule for Inherited IRAs – Image for illustrative purposes only (Image credits: Pexels)
Non-spousal beneficiaries inheriting IRAs after 2019 face a strict deadline to withdraw all funds within 10 years of the original owner’s death. This requirement, part of the SECURE Act, replaced the previous “stretch IRA” option that permitted distributions over a beneficiary’s lifetime.[1][2] Recent questions from readers highlight ongoing confusion, as addressed in Kiplinger’s latest Ask the Tax Editor feature by Joy Taylor.[3]
From Stretch to Sprint: How Rules Changed
The SECURE Act, enacted in late 2019, fundamentally altered post-death distribution rules for retirement accounts. Before 2020, non-spouse beneficiaries could stretch withdrawals over their life expectancy, preserving tax-deferred growth for decades. Now, most must fully distribute the account by December 31 of the 10th year following the owner’s death.[4]
This shift aims to accelerate tax revenue collection but has created planning challenges. Beneficiaries no longer enjoy indefinite deferral, prompting many to reassess withdrawal strategies early.[5] The rule applies to traditional, Roth, and similar inherited IRAs or plans.
Who Falls Under the 10-Year Mandate?
Non-eligible designated beneficiaries bear the brunt of the change. This group includes adult children, grandchildren, siblings, friends, and most other non-spouses who inherit after 2019. Estates, charities, and non-individuals also follow the 10-year timeline.[6]
Eligible designated beneficiaries escape the strict 10-year limit in many cases. Spouses, minor children of the owner (until age 21), disabled or chronically ill individuals, and those no more than 10 years younger than the deceased qualify. These groups may use life expectancy distributions instead.[6] For instance, an older sibling inheriting from a younger deceased owner might avoid the rule if age differences fit the criteria.[7]
| Beneficiary Type | Pre-2020 Rule | Post-2019 Rule (Non-EDB) |
|---|---|---|
| Adult Child | Stretch over life expectancy | Empty in 10 years |
| Spouse | Treat as own IRA | Treat as own or life expectancy |
| Minor Child | Stretch until age 21, then 10 years | Life expectancy until 21, then 10 years |
| Disabled Individual | Stretch over life expectancy | Life expectancy option |
Annual Withdrawals: Not Just a Year-End Rush
Early assumptions suggested no annual required minimum distributions (RMDs) during the 10 years – just a full depletion by the end. Final IRS regulations in 2024 clarified otherwise for many cases. If the original owner had reached their required beginning date (age 73 for most recent deaths), beneficiaries must take yearly RMDs based on their own life expectancy.[4]
These RMDs start the year after death and continue through year 9, with the account zeroed by year 10’s close. Roth IRAs follow the 10-year rule but carry no RMDs or income taxes on qualified withdrawals.[8] The IRS waived penalties for missed RMDs in 2021 and 2022 under Notice 2022-53, offering relief amid initial uncertainty.[6]
Failure to comply now risks a 25% excise tax on undistributed amounts, reduced to 10% if corrected timely.
Planning Strategies to Minimize Tax Hits
Beneficiaries often strategize withdrawals to stay in lower tax brackets, perhaps accelerating in low-income years. Converting portions to Roth IRAs beforehand could reduce future taxes, though upfront costs apply.[9] Timing matters, especially with potential bracket creep from large lump sums.
Common pitfalls include commingling funds or missing deadlines. Transferring to an inherited IRA account promptly preserves options. For multiple beneficiaries, each handles their share independently.[10]
Staying Compliant in a Complex Landscape
As rules solidify, resources like Joy Taylor’s Q&As provide clarity on nuances, such as pre-2020 inheritances or age-based exceptions.[3] Beneficiaries inheriting in 2026 must track the timeline meticulously, as year one begins immediately.
Tax professionals recommend reviewing account statements annually and modeling distribution scenarios. While the 10-year rule compresses timelines, thoughtful planning can still optimize after-tax value. The landscape continues to evolve, underscoring the need for up-to-date guidance.
