How Are Inherited IRAs Taxed: 10-Year Rule and Spousal Options

Money you pull from an inherited traditional IRA is taxed as ordinary income in the year you take it, at whatever federal bracket you land in that year.¹ Inherited Roth IRAs work the other way around: qualified withdrawals are tax-free. How fast you have to empty the account, and whether you owe anything each year along the way, depends on your relationship to the person who died and, for traditional accounts, whether the original owner had already started taking required minimum distributions. That is the short answer to how inherited IRAs are taxed. The rest of this article walks through the pieces that decide your actual bill.

Traditional and Roth Tax Treatment Side by Side

Traditional IRA money was never taxed on the way in (or grew tax-deferred), so the IRS collects on the way out. Every dollar of a distribution from an inherited traditional IRA gets added to your other income for that year and taxed at your marginal rate. A large withdrawal can push you into a higher bracket by itself.

Inherited Roth IRAs follow the same distribution timelines as traditional IRAs, but qualified distributions come out completely tax-free, covering both the original contributions and all investment earnings. For earnings to qualify, the Roth account must have been open for at least five tax years. You inherit the original owner’s clock: if a parent opened the Roth in 2018 and died in 2025, the five-year requirement was met before death and every dollar is tax-free.² If the account was opened less than five years before death, contributions still come out tax-free but earnings withdrawn before the five-year mark are taxable.

One rule applies to both types: no matter your age, you never owe the 10% early withdrawal penalty on distributions taken from an inherited IRA.³ The one place that changes is if a surviving spouse rolls the inherited IRA into their own IRA and then withdraws before age 59½; at that point the account is the spouse’s own and the penalty applies.

Who You Are to the Deceased Changes Your Timeline

The SECURE Act of 2019 rewrote the rules for deaths occurring after December 31, 2019.⁴ Which category you fall into decides how long you have and, indirectly, how much of your withdrawal ends up in higher tax brackets.

Surviving Spouses

Spouses have the most room to maneuver. You can roll the inherited IRA into your own IRA and delay required minimum distributions until you reach your own RMD age (73 if you were born between 1951 and 1959, or 75 if born in 1960 or later).⁵ You can keep the account titled as an inherited IRA and take distributions under the life expectancy method or the 10-year rule. A SECURE 2.0 option lets you keep the account as an inherited IRA while being treated as the deceased owner for RMD purposes, which helps if you’re under 59½ and want to draw on it without the early withdrawal penalty that would apply after a rollover.

Eligible Designated Beneficiaries

A narrow group of non-spouse beneficiaries can still stretch distributions over their own life expectancy:

Biological or legally adopted minor children of the account owner, until age 21, at which point the 10-year clock starts for the remaining balance. Grandchildren and stepchildren don’t qualify.
Disabled or chronically ill individuals as defined by IRS rules.
Individuals not more than 10 years younger than the deceased owner, such as siblings close in age.

If an eligible designated beneficiary dies before emptying the account, their successor must drain the balance within 10 years.⁶

Non-Eligible Designated Beneficiaries

Most individual heirs land here: adult children, siblings, friends, non-spouse partners. You have to empty the entire account by December 31 of the tenth year after the year of death.⁶ Whether you have to take annual distributions along the way depends on a detail covered in the next section.

The 10-Year Rule Has Two Versions

For a non-eligible designated beneficiary of a traditional IRA, the 10-year rule operates differently depending on whether the original owner had reached their required beginning date before dying.

Owner Died Before Their Required Beginning Date

You have ten years to empty the account, and you choose the timing. No annual minimum applies. You could take nothing for nine years and drain everything in year ten.⁷ The only hard deadline is December 31 of the tenth year.

Owner Died On or After Their Required Beginning Date

Final IRS regulations effective January 1, 2025 require annual distributions in years one through nine, with the remaining balance due by the end of year ten.⁸ Each annual amount is calculated using IRS life expectancy tables. Miss one and you owe a 25% excise tax on the amount you should have withdrawn, dropping to 10% if you correct it within two years.⁹ The IRS waived the annual-distribution penalty from 2021 through 2024 while it finalized the regulations, but that relief is over.¹⁰

Spousal Options and Their Tax Consequences

A spouse choosing among the three paths is really choosing among tax outcomes.

Rolling into your own IRA is the most common choice and usually the most tax-efficient. From that point the money follows normal IRA rules, and RMDs don’t start until you reach your own required beginning date.⁹ Every future distribution is taxed as ordinary income, but if you’re significantly younger than your late spouse, the rollover can push tax deferral out by decades. The catch is the early withdrawal penalty: once the money is in your own IRA, distributions before 59½ are subject to the 10% penalty absent an exception.¹¹

Keeping the account titled as an inherited IRA is the better move when you’re under 59½ and might need access. You can take distributions based on your life expectancy with no early withdrawal penalty regardless of age.³ SECURE 2.0 also lets you elect to be treated as the deceased owner for RMD calculations, which pulls in the more favorable Uniform Lifetime Table rather than the Single Life Table and produces smaller required amounts. You can always roll the balance into your own IRA later.

For a Roth account, a spousal rollover into your own Roth IRA eliminates lifetime RMDs entirely and lets the money keep growing tax-free.

Timing Your Withdrawals to Control the Bill

For a traditional inherited IRA, spreading withdrawals across the available years almost always beats waiting. A $500,000 balance withdrawn in a single year can generate a six-figure federal tax bill; $50,000 a year across ten years keeps each addition to your income manageable. If you know you’ll have a low-income year, taking a larger slice that year uses up the lower brackets.

Even under the “died after RBD” version of the 10-year rule, the annual amount is a floor, not a ceiling. You can always take more than the minimum in a year when your other income is down.

For a Roth, the strategy flips. Distributions cost you nothing in tax, so the longest runway wins. If you’re subject to the 10-year rule on an inherited Roth, waiting until year ten and taking one tax-free lump sum maximizes tax-free growth.

When the Original Owner Made Non-Deductible Contributions

If the original owner ever contributed after-tax money to the traditional IRA and tracked it on Form 8606, that basis carries over to you. The portion of each distribution attributable to those after-tax contributions comes out tax-free; the rest is taxable. The math is proportional. On a $100,000 account with $20,000 of non-deductible contributions, 20% of any distribution is tax-free and 80% is taxable.

You have to file Form 8606 with your return for any year you take a distribution from an inherited traditional IRA that has basis.¹² Track down the original owner’s old Form 8606 filings or ask their tax preparer. If nobody kept track, the IRS treats the whole account as pre-tax and you pay income tax on money that was already taxed once.

The IRD Deduction When Estate Tax Was Paid

If the deceased owner’s estate paid federal estate tax and the IRA was part of the taxable estate, you can claim an itemized income tax deduction under Section 691(c) as you take distributions. It offsets the double hit of estate tax on the account plus income tax on every withdrawal.¹³ The deduction is proportional to the share of estate tax attributable to the IRA and is claimed in the same year as the distribution. This only matters for very large estates (the federal exemption is over $13 million per person in 2025), but when it applies the savings are substantial.

Qualified Charitable Distributions From Inherited IRAs

Beneficiaries 70½ or older can send up to $111,000 per year directly from an inherited traditional IRA to a qualifying charity through a qualified charitable distribution.¹⁴ The money moves from the custodian to the charity without ever entering your taxable income, and it can count toward any required distribution for that year. Routing a $30,000 gift through a QCD rather than taking the withdrawal and writing a separate check saves you the income tax on that $30,000, even if you don’t itemize.

Withholding on Large Distributions

Inherited IRA distributions payable on demand are nonperiodic payments, and the default federal withholding rate is 10% of the taxable amount. You can elect a different rate by filing Form W-4R with the custodian.¹⁵

That 10% default is a trap on big withdrawals. If you’re in the 22% or 24% bracket and take a $100,000 distribution, the custodian withholds $10,000 but you might owe $22,000 to $24,000 in federal tax, plus state tax in most states, and possibly an underpayment penalty on top. Raising the withholding to at least your marginal bracket, or sending quarterly estimated payments, keeps April from becoming a shock.

Reporting the Distribution on Your Return

The custodian sends you Form 1099-R for the year you take a distribution. Box 1 shows the gross distribution. Box 2a shows the taxable amount, which matches Box 1 for a traditional IRA without basis and is zero for a qualified Roth distribution. Box 7 carries the distribution code; code “4” means the distribution is due to death and tells the IRS no early withdrawal penalty applies.¹⁶

On Form 1040, the gross amount from Box 1 goes on Line 4a and the taxable amount from Box 2a goes on Line 4b. For a fully qualified inherited Roth distribution, Line 4a shows the withdrawal amount and Line 4b shows zero. If the traditional account has basis, file Form 8606 with your return to compute the tax-free portion.¹²

Disclaiming an Inherited IRA

Sometimes declining the inheritance produces a better tax result overall, because the assets then pass to the next beneficiary in line, often a younger family member with a longer runway or a lower tax rate. A qualified disclaimer must be in writing and delivered to the custodian within nine months of the original owner’s death.¹⁷ You cannot have accepted any benefit from the account first. Taking even one distribution before disclaiming disqualifies the whole disclaimer.

1
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts
2
Ascensus. Roth IRA Beneficiary Options and Reporting Requirements
3
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
4
Internal Revenue Service. Retirement Topics – Beneficiary
5
Congressional Research Service. Required Minimum Distribution (RMD) Rules for Original Owners
6
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
7
Internal Revenue Service. Publication 590-B – Distributions From Individual Retirement Arrangements
8
Federal Register. Required Minimum Distributions
9
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
10
Internal Revenue Service. Notice 2024-35 – Certain Required Minimum Distributions
11
Charles Schwab. Inherited IRA Withdrawal Rules
12
Internal Revenue Service. Instructions for Form 8606
13
Internal Revenue Service. Revenue Ruling 2005-30
14
Congressional Research Service. Qualified Charitable Distributions From Individual Retirement Accounts
15
Internal Revenue Service. 2026 Form W-4R
16
Internal Revenue Service. Instructions for Forms 1099-R and 5498
17
Office of the Law Revision Counsel. 26 USC 2518 – Disclaimers