When someone leaves you a retirement account, the rules for what you can do with it have changed substantially in recent years. The SECURE Act of 2019 eliminated a strategy — the “stretch IRA” — that allowed many heirs to take small distributions spread over their entire lifetime. Most non-spouse beneficiaries now face a firm 10-year deadline to drain the account. Knowing the rules determines how much of the inheritance ultimately goes to you versus taxes.
Quick answer: the rules depend on your relationship to the deceased
The IRS divides beneficiaries into categories, and each category gets different treatment. Your relationship to the person who died — and your age relative to theirs — determines which rules apply to you.
Spouse beneficiaries: the most flexible option
A surviving spouse has options no other beneficiary gets:
- Roll the account into their own IRA: the most common choice. The inherited funds merge into the spouse’s own account and follow all the same rules as their own IRA — including their own RMD schedule.
- Keep it as an inherited IRA: the account stays titled as inherited. This is sometimes useful when the surviving spouse is younger than 59½ — they can take distributions without the early withdrawal penalty.
- For an inherited 401(k): spouses can roll the funds directly into their own IRA. Non-spouse beneficiaries cannot do this.
Eligible designated beneficiaries (EDBs): life expectancy option remains
Before the SECURE Act, almost any individual beneficiary could stretch distributions over their own life expectancy. Now, only a narrow group — called eligible designated beneficiaries — can still use that approach:
- Surviving spouses
- Minor children of the account owner (until the child reaches the age of majority, after which the 10-year rule kicks in for the remaining balance)
- Disabled or chronically ill individuals, as defined by IRS criteria
- Beneficiaries not more than 10 years younger than the deceased
EDBs can take distributions over their own life expectancy using IRS tables — a more gradual drawdown than the 10-year deadline.
The 10-year rule: for most other beneficiaries
If you inherited a retirement account and you’re not a surviving spouse or an EDB, the 10-year rule applies. All funds must be distributed by December 31 of the tenth year after the account owner died.
This applies regardless of your age. An adult child who inherits a traditional IRA from a parent has 10 years, period. A sibling, a friend named as beneficiary — same deadline.
Within the 10 years, you don’t have to follow a fixed schedule. You could take nothing for nine years and the full amount in year 10, or spread it evenly, or take more in lower-income years. However: if the deceased had already begun taking RMDs, the IRS has issued guidance (and waived penalties multiple times through 2024) about whether annual distributions are also required in years 1–9. This area has been unsettled — check current IRS guidance or consult a tax professional before planning your distribution schedule.
Non-designated beneficiaries: the 5-year rule
If the beneficiary is an estate, a charity, or a trust that doesn’t have a qualifying individual beneficiary, the rules are stricter:
- If the account owner died before their required beginning date for RMDs: all funds must be distributed within 5 years.
- If the account owner had already started RMDs: distributions can continue over the deceased’s remaining life expectancy.
This situation arises most often when no beneficiary was named on the account or when an estate is named as the beneficiary.
Inherited Roth IRA
Inherited Roth IRAs follow the same beneficiary categories and 10-year/life-expectancy rules. The key difference: qualified distributions from an inherited Roth IRA are tax-free, because the contributions were made after-tax.
For distributions to be fully tax-free, the account must have been open for at least five years before the original owner’s death. If that clock wasn’t complete, earnings (but not contributions) may be taxable.
Roth IRAs have no RMD requirement for the original owner — but inherited Roth IRAs are subject to the 10-year rule for non-spouse, non-EDB beneficiaries. Since qualified withdrawals are tax-free, the timing of distributions within the 10-year window has less urgency than with a traditional IRA — but the deadline still applies.
Inherited 401(k) considerations
The rules for an inherited 401(k) mirror those for inherited IRAs, with some practical differences:
- The plan may have its own distribution rules that are more restrictive than IRS minimums. Read the plan document.
- Non-spouse beneficiaries cannot roll an inherited 401(k) into their own IRA. They must use a separate inherited (beneficiary) IRA.
- Most financial advisors recommend rolling an inherited 401(k) to an inherited IRA for more investment flexibility and clearer rules.
- Spouses can roll an inherited 401(k) into their own IRA.
Tax strategy within the 10-year window
For heirs of traditional IRAs under the 10-year rule, how you spread the distributions matters. Taking everything in a single high-income year pushes you into a significantly higher bracket. Spreading withdrawals across the 10 years — weighted toward lower-income years (between jobs, just retired, before Social Security begins) — usually produces better tax outcomes.
Inherited IRA distributions are ordinary income. They can also affect the calculation that determines how much of your own Social Security benefits are taxable, and whether you owe IRMAA Medicare surcharges.
Common mistakes
- Missing the 10-year deadline. Some heirs treat an inherited IRA like their own account and make no distributions for years, then face a large tax bill and possible penalty.
- Rolling an inherited IRA into their own IRA. Only spouses can do this. Non-spouses who do this create a tax mess.
- Cashing out immediately. A large lump-sum withdrawal triggers full ordinary income tax in one year — often at a higher rate than spreading it out.
- Neglecting beneficiary designations on your own accounts. If you’ve inherited, it’s a good reminder to verify that your own retirement accounts have up-to-date beneficiary designations.
What to do next
If you’ve recently inherited a retirement account: verify the beneficiary designation is in your name, don’t cash out without understanding the tax impact, contact the plan custodian to understand your options, and work with a CPA to plan the most tax-efficient distribution schedule over the 10-year window. Acting quickly in the first year isn’t required — but understanding the deadline and the rules is.
Further Reading
- Required Minimum Distributions (RMDs) Explained
- Roth Conversions Explained
- Tax-Efficient Withdrawal Order in Retirement
- How Retirement Income Is Taxed
- IRMAA: How Income Affects Medicare Premiums
This article is for general educational purposes only and does not constitute financial, tax, or investment advice. Individual circumstances vary — consider working with a qualified financial advisor or tax professional before making retirement account decisions.
