Beneficiary IRA vs Inherited IRA: 10-Year Rule, Taxes, and RMDs

A beneficiary IRA and an inherited IRA are the same account. Brokerages and banks tend to print “beneficiary IRA” on their forms, while the IRS uses “inherited IRA” in Publication 590-B and on Form 1099-R.¹ The legal rules, tax treatment, and distribution deadlines are identical whichever label appears on your statements. What actually determines your obligations is your relationship to the person who died and whether they had reached their required beginning date.

The federal tax code defines the account as one acquired by reason of the death of another individual.² That statutory definition governs regardless of what your custodian prints on the quarterly report.

Which Beneficiary Category You Fall Into

The SECURE Act of 2019 sorted beneficiaries into tiers that receive very different treatment. Finding your tier is the first step, because everything else follows from it.

Surviving Spouses

A surviving spouse has the most options. You can treat the inherited IRA as your own by redesignating yourself as the owner, roll the funds into your existing IRA, or stay a beneficiary and take distributions based on your life expectancy.¹ Starting in 2024, SECURE 2.0 added an election to be treated as if you were the deceased owner for distribution purposes, which delays required withdrawals until the year your spouse would have reached their required beginning date.

Eligible Designated Beneficiaries

A narrow group of non-spouse beneficiaries can stretch distributions over their own life expectancy instead of being forced into a 10-year window. This group includes minor children of the deceased owner (until they turn 21, when the 10-year clock starts), disabled or chronically ill individuals meeting the tax code’s definition, and individuals not more than 10 years younger than the deceased.³ Life expectancy distributions keep the annual withdrawal smaller and spread the income tax across decades.

Non-Eligible Designated Beneficiaries

Most adult children, grandchildren, friends, and other named individuals land here. This tier is subject to the 10-year rule and is where the SECURE Act changed the landscape most sharply.

Non-Designated Beneficiaries

Estates, charities, and trusts that don’t qualify as “see-through” trusts fall in this category and get the least favorable treatment. If the owner died before their required beginning date, the account must be emptied within five years. If the owner had already started required distributions, the entity takes distributions over the deceased owner’s remaining life expectancy.

The 10-Year Rule and When Annual RMDs Apply

If you’re a non-eligible designated beneficiary, the entire account must be emptied by December 31 of the year containing the 10th anniversary of the owner’s death.¹ How you spread withdrawals across those 10 years is largely your choice, with one important exception.

If the original owner died on or after their required beginning date, you must also take annual distributions in years one through nine. Treasury’s final regulations confirmed this in July 2024.⁴ The annual amounts come from the IRS Single Life Expectancy Table in Publication 590-B.¹ If the owner died before that date, no annual distributions are needed inside the 10-year window; you just need to empty the account by the end of year 10.

The required beginning date is April 1 of the year after the owner turns 73 (for those born between 1951 and 1959) or 75 (for those born in 1960 or later).⁵

The IRS waived penalties for missed annual distributions from 2021 through 2024 while these rules were being finalized.⁶ That relief has ended. Beginning with the 2025 distribution year, the annual RMD requirement is fully enforced. If you inherited from someone who died in 2020 or later and have been skipping the annual amount, 2025 and 2026 are the years to get current.

Penalties for a Missed Distribution

Missing a required withdrawal triggers an excise tax of 25% on the shortfall.⁷ Before SECURE 2.0 that penalty was 50%, so the current rate is lower, but it still hurts on a large account.

The tax drops to 10% if you correct the shortfall within the correction window: take the missed distribution and file the appropriate return before the IRS sends a notice of deficiency or assesses the tax, and no later than the end of the second tax year after the shortfall occurred.⁷ Fixing a miss quickly cuts the bill by more than half.

How the Distributions Are Taxed

Withdrawals from an inherited traditional IRA are ordinary income at your marginal rate. There’s no capital gains treatment, no matter what the account holds. Every dollar you take out lands on your return alongside your wages, which can push you into a higher bracket if you cluster large withdrawals in a single year.

One benefit: inherited IRA distributions are exempt from the 10% early withdrawal penalty that otherwise applies to IRA withdrawals before age 59½.⁸ Age doesn’t matter for this account.

Custodians report each distribution on Form 1099-R using distribution code “4” in Box 7 to flag a death-related payout. You’ll receive that form each January.

Inherited Roth IRAs

A Roth is generally more favorable but not automatically tax-free. Contribution withdrawals come out tax-free. Earnings are tax-free as long as the Roth had been open for at least five years before the owner’s death.³ If the account is younger than five years, earnings may be taxable.

Non-eligible designated beneficiaries still face the 10-year deadline on an inherited Roth. But because Roth owners have no lifetime RMDs, they are always treated as dying before their required beginning date, so no annual distributions are required during the 10 years.¹ You can let the balance grow tax-free for a decade and pull the entire amount in year 10 without owing income tax, assuming the five-year requirement is satisfied.

Opening and Titling the Account

The account has to be titled to identify both the deceased owner and you as the beneficiary. A typical format reads: “John Smith, deceased, for the benefit of Jane Smith.” That naming convention signals to the IRS that the money came from an inheritance and not from personal contributions.¹

To open the account, the custodian will ask for a certified copy of the death certificate, the deceased’s identifying information, and your tax ID and address. You cannot make new contributions to an inherited IRA, and you cannot merge it with your own IRA. The IRS prohibits both.¹

Moving the Account to Another Custodian

Non-spouse beneficiaries can only use a trustee-to-trustee transfer. The 60-day indirect rollover available to regular IRA owners is off the table. Federal law prohibits non-spouse beneficiaries from rolling over inherited IRA funds.² If you take a distribution intending to redeposit it, the full amount is taxable income.

In a trustee-to-trustee transfer, the sending institution moves the money directly to the receiving institution without the funds passing through your hands. That keeps the transfer non-taxable and avoids the 20% mandatory federal withholding that applies to eligible rollover distributions taken indirectly.⁹ Most transfers take two to four weeks. Some custodians charge an outgoing transfer fee, often $75 to $150, so ask both firms before initiating the move.

Multiple Beneficiaries and Successor Beneficiaries

When an IRA owner names more than one beneficiary, all of them share a single inherited IRA unless they split it into separate accounts. Splitting matters because it lets each person’s distributions be calculated on their own life expectancy. Without separate accounts, everyone’s required amounts key off the oldest beneficiary, accelerating the timeline for younger heirs. The deadline to complete the split is December 31 of the year after the year of the owner’s death, and post-death gains and losses must be allocated proportionally among the new accounts.

Once the account is in your name, you can often name your own successor beneficiary, depending on the custodian’s plan documents. Ask when you open the account. If you don’t name anyone, the remaining assets typically pass under the default provisions of the original plan agreement, which often routes them through your estate.

A successor beneficiary does not get a fresh 10-year clock in most cases. If you were a non-eligible designated beneficiary subject to the 10-year rule, your successor has to finish emptying the account by the same deadline you faced, measured from the original owner’s death. If you were an eligible designated beneficiary taking life expectancy distributions, your successor gets 10 years from your death to drain the account.

1
Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)
2
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
3
Internal Revenue Service. Retirement Topics – Beneficiary
4
Federal Register. Required Minimum Distributions
5
Congressional Research Service. Required Minimum Distribution (RMD) Rules for Original Owners
6
Internal Revenue Service. Notice 2024-35 – Certain Required Minimum Distributions
7
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
8
Internal Revenue Service. Topic No. 557 – Additional Tax on Early Distributions from Traditional and Roth IRAs
9
Internal Revenue Service. Pensions and Annuity Withholding