Inheriting an IRA can feel like a financial windfall — until the tax bill arrives. The rules governing inherited IRAs have changed significantly in recent years, and getting them wrong can cost you tens of thousands of dollars in unnecessary taxes or IRS penalties. Whether you’re a surviving spouse, an adult child, or another beneficiary, here’s what you need to know before you touch an inherited retirement account.
The SECURE Act changed everything in 2020
Before 2020, most beneficiaries could stretch inherited IRA withdrawals over their own life expectancy — a strategy called the stretch IRA. A 40-year-old inheriting an IRA could take small annual distributions over 40+ years, keeping most of the money invested and growing tax-deferred.
The SECURE Act of 2019 (effective January 1, 2020) eliminated the stretch IRA for most non-spouse beneficiaries. In its place: the 10-year rule. Most beneficiaries must now empty the inherited IRA within 10 years of the original owner’s death. The IRS clarified in 2023 that beneficiaries who inherit from someone who had already started taking required minimum distributions (RMDs) must take annual distributions during the 10-year period — they can’t simply wait and take everything in year 10.
Surviving spouse rules — the most flexible option
Spouses who inherit an IRA have the most flexibility of any beneficiary category. A surviving spouse can:
- Treat the inherited IRA as their own. Roll it into their own IRA. They become the account owner, subject to their own RMD rules starting at age 73. This is usually the best option for younger spouses who don’t need the money immediately.
- Keep it as an inherited IRA. This allows withdrawals before age 59½ without the 10% early withdrawal penalty — useful if the surviving spouse is younger than 59½ and needs income before they can access their own IRA penalty-free.
- Roll into their own IRA and then into a new inherited IRA if they want to delay RMDs. Spouses have a unique ability to choose when to “step into” ownership.
There is no 10-year rule for surviving spouses. They can keep inherited IRA funds growing for decades under their own timeline.
The 10-year rule for most other beneficiaries
Non-spouse beneficiaries who don’t fall into an exception category must empty the inherited IRA within 10 years of the original owner’s death. There’s no requirement to take a specific amount each year — flexibility exists in how you time the withdrawals, just not in the final deadline.
Strategy within the 10-year window matters for taxes:
- If you’re in a low-income year (job loss, early retirement, career change), take larger withdrawals that year to use up your lower tax bracket
- Avoid bunching large withdrawals in high-income years where they’ll push you into a higher bracket
- If the inherited IRA holds a traditional (pre-tax) account, every dollar you withdraw is ordinary income — plan withdrawals around your other income sources
Failing to empty the account by year 10 triggers a 25% excise tax on any remaining balance (reduced from 50% by the SECURE 2.0 Act).
Eligible designated beneficiaries — exceptions to the 10-year rule
Certain beneficiaries — called Eligible Designated Beneficiaries (EDBs) — are exempt from the 10-year rule and may still use the stretch IRA over their life expectancy:
- Surviving spouses (as described above)
- Minor children of the original account owner — but only until they reach the age of majority (typically 18 or 21 depending on state law). After that, the 10-year rule applies and they have 10 years from the age of majority to empty the account.
- Disabled individuals (as defined by the IRS — must meet specific criteria)
- Chronically ill individuals
- Beneficiaries within 10 years of age of the deceased — e.g., a sibling who is close in age
If you believe you may qualify as an EDB, verify with a tax professional before assuming you have the stretch option.
Inherited Roth IRA rules
Inherited Roth IRAs follow the same 10-year rule for non-spouse beneficiaries, but with a major difference: qualified distributions from an inherited Roth IRA are tax-free. If the original owner held the Roth IRA for at least five years, beneficiaries can withdraw the funds without owing income tax.
This makes inherited Roth IRAs extremely valuable. A beneficiary in a high tax bracket can withdraw a large inherited Roth balance all at once in year 10 and owe nothing — versus an inherited traditional IRA where a large year-10 withdrawal could push them into a 32% or 37% bracket.
For surviving spouses, the same rollover flexibility applies to Roth IRAs. Rolling an inherited Roth into your own Roth IRA allows continued tax-free growth with no RMD requirements during your lifetime.
What to do immediately after inheriting an IRA
- Don’t panic or rush. You have time. Taking a large immediate withdrawal to “simplify things” is often a costly mistake — you’ll pay tax on the full amount that year.
- Notify the custodian. Contact the financial institution holding the IRA. Provide a death certificate and your identification. Ask them to re-title the account as an inherited IRA in your name.
- Do not roll an inherited IRA into your own IRA (unless you are the surviving spouse). Non-spouses who commingle an inherited IRA with their own IRA lose all inherited IRA protections and will owe tax on the entire amount immediately.
- Determine your beneficiary category. Are you a surviving spouse, EDB, or subject to the 10-year rule? This determines your timeline and strategy.
- Consult a tax advisor. Inherited IRA taxation is complex. A one-time consultation with a CPA familiar with inherited accounts is worth the cost.
RMD rules for inherited IRAs
If the original account owner had already started taking RMDs when they died, most non-spouse beneficiaries subject to the 10-year rule must continue taking annual distributions during the 10-year period. The IRS waived penalties for not taking these distributions in 2021–2024 while guidance was being finalized, but full enforcement resumed in 2025.
The annual distribution amount during the 10-year period is calculated using the beneficiary’s own life expectancy factor from the IRS Single Life Table. An inherited IRA custodian can usually calculate this for you, or a tax advisor can run the numbers.
If the original owner had not started RMDs before death, non-spouse beneficiaries subject to the 10-year rule have more flexibility — no annual distributions are required, just full depletion by the end of year 10.
State taxes on inherited IRAs
Inherited IRA distributions are generally subject to both federal and state income tax. A few states exempt retirement income from taxation, which can significantly affect your net distribution. If you live in a state with high income tax, factor that into your withdrawal timing strategy.
Some states also have their own inheritance taxes separate from income tax — though IRAs are often exempt from state inheritance taxes because they pass directly to named beneficiaries outside of the estate. Verify the rules in your state.
Further Reading
- RMDs Explained
- Roth Conversions Explained
- Tax-Efficient Withdrawal Order
- How Taxes Change in Retirement
- What Is a QDRO?
- Retirement and Divorce: Protecting Your Financial Future
This article is for general educational purposes only and does not constitute financial, tax, or legal advice. Consult a qualified financial advisor, tax professional, or attorney for guidance specific to your situation.
