Inherited 403(b) Rules: Beneficiaries, the 10-Year Rule, and Taxes

The rules for an inherited 403(b) depend almost entirely on who you are to the person who died. A surviving spouse can roll the account into their own retirement plan and treat it as their own. Most other individual beneficiaries have 10 years to empty it. A narrow group — minor children of the owner, disabled or chronically ill beneficiaries, and anyone not more than 10 years younger than the deceased — can still stretch withdrawals over their own lifetime. Estates, charities, and non-qualifying trusts face the tightest schedules of all. Missing a deadline or mistitling the account can accelerate taxes you did not need to pay, so the first task is identifying which category applies to you.

Which Beneficiary Category You Fall Into

Federal tax law sorts every beneficiary into one of three groups, and the group determines the timeline.

Eligible designated beneficiaries (EDBs) get the most favorable treatment. You qualify if you are the surviving spouse, a minor child of the deceased owner, disabled, chronically ill, or no more than 10 years younger than the deceased participant.¹ EDBs can stretch distributions over their own life expectancy, an option the SECURE Act closed off for everyone else.

Regular designated beneficiaries are individuals named on the account who do not fit any EDB category. Adult children, siblings, friends, and partners more than 10 years younger than the deceased owner all land here. The 10-year rule applies.²

Non-designated beneficiaries are estates, charities, or trusts that do not meet see-through requirements. They follow older, more compressed schedules because the SECURE Act’s 10-year rule only changed the rules for individual beneficiaries.³

A trust can be treated as a “see-through” trust — allowing the IRS to look through to the individuals underneath and apply their distribution rules — only if it is valid under state law, is (or becomes) irrevocable at the owner’s death, has identifiable beneficiaries, and delivers specific documentation to the plan administrator.⁴ A trust that fails any of these tests is treated as a non-designated beneficiary.

If You Are the Surviving Spouse

Spouses have the widest range of choices, and picking the right one can mean decades of additional tax-deferred growth.

The most common approach is rolling the 403(b) assets into your own IRA or another eligible plan such as a 401(k) or your own 403(b). Once rolled over, the account is treated as if it were always yours. You delay required minimum distributions until you reach your own required beginning date, which is age 73 for most people in 2026.⁵ People born in 1960 or later will not need to begin RMDs until age 75.⁶ You name your own beneficiaries on the new account, resetting the inheritance rules for the next generation.

You can instead keep the funds in an inherited account. Under this approach, you take RMDs based on your own life expectancy, or you can delay distributions until the year the deceased owner would have reached their required beginning date. This makes sense if you are younger than 59½ and need access to the money without the 10% early withdrawal penalty that would otherwise apply to distributions from your own IRA.

A lump-sum withdrawal is available but expensive. The entire pre-tax amount hits your tax return as ordinary income for that year, which frequently pushes you into a much higher federal bracket. A partial rollover is another path: move some of the money into your own retirement account while taking the rest as a taxable distribution to cover immediate needs.

The 10-Year Rule for Most Non-Spouse Beneficiaries

If you are a designated beneficiary but not an EDB, you must empty the inherited 403(b) by December 31 of the year containing the tenth anniversary of the owner’s death.⁷ How the withdrawals are paced during that decade depends on when the original owner died relative to their required beginning date.

Owner Died Before Their Required Beginning Date

You have full flexibility within the 10-year window. No annual minimum withdrawals are required in years one through nine. You can take money out whenever you want, or wait until the last year. Bunching the entire balance into year 10 usually creates a painful tax bill.

Owner Died On or After Their Required Beginning Date

The rules tighten. IRS final regulations issued in July 2024 and effective for distribution years beginning January 1, 2025, confirm that you must take annual RMDs in years one through nine, with the full remaining balance due by the end of year 10.⁸ The annual amounts are calculated using your own single life expectancy. Missing a year-one-through-nine distribution triggers the standard penalty for insufficient RMDs.

The Year-of-Death RMD

Any RMD the owner was required to take for the year of death but had not yet taken must still be distributed by the end of that calendar year. That shortfall is the responsibility of the beneficiary or the estate, not the deceased owner. Failing to take it triggers the standard penalty for missed RMDs.

Who Can Still Use the Life Expectancy Stretch

EDBs who are not the surviving spouse can still stretch distributions over their own life expectancy, which often keeps annual taxable amounts manageable. This is the closest surviving option to the old “stretch IRA” strategy that the SECURE Act eliminated for everyone else.

A minor child of the deceased owner qualifies only until reaching the age of majority, which federal regulations define as the child’s 21st birthday.¹ Once the child turns 21, the 10-year clock starts and the remaining balance must be fully distributed within those 10 years. Only the deceased owner’s own children qualify. Grandchildren, nieces, nephews, and stepchildren who were not legally adopted do not.

Disabled and chronically ill beneficiaries must provide documentation to the plan administrator establishing their status as of the date of the owner’s death. Meeting the IRS definition is not automatic and the documentation requirements are strict.

A beneficiary not more than 10 years younger than the deceased owner qualifies based purely on dates of birth. This category most commonly applies to siblings or close-in-age partners.

When No Individual Is Named

Estates, charities, and trusts that do not qualify as see-through trusts face compressed distribution windows.

If the owner died before their required beginning date, the entire account must be emptied by December 31 of the fifth year after the year of death. No annual minimums are required during those five years, but the balance must be zero by the deadline.
If the owner died on or after their required beginning date, distributions are taken annually based on the deceased owner’s remaining life expectancy, with the prior year’s divisor reduced by one each year until the account is depleted.

Non-designated beneficiaries cannot stretch payments over their own life expectancy. If the deceased owner failed to name a beneficiary and the account passes through the estate, the compressed timeline applies regardless of the age or financial situation of the person who ultimately receives the funds.

Inherited Roth 403(b) Accounts

Roth 403(b) balances were funded with after-tax dollars, so the tax treatment on the way out is much better. Withdrawals of contributions are always tax-free. Withdrawals of earnings are also tax-free as long as the account has been open for at least five taxable years, counting from the year the deceased owner first made a designated Roth contribution to the plan.⁹ If that five-year period has not been satisfied at the time of distribution, the earnings portion is taxable as ordinary income.

The distribution timeline rules do not change. A non-spouse designated beneficiary must still empty the account within 10 years; an EDB can still use the life expectancy method.⁷ The difference is that forced distributions are tax-free once the five-year period is met.

One boundary worth noting: during the original owner’s lifetime, Roth 403(b) accounts are no longer subject to RMDs under SECURE 2.0. That rule does not carry over to beneficiaries. Once the owner dies, the beneficiary distribution rules apply whether the account is Roth or traditional.

How Distributions Are Taxed

Because most 403(b) contributions were made with pre-tax dollars, distributions from an inherited traditional 403(b) are taxed as ordinary income in the year received. The plan administrator or custodian reports each distribution on IRS Form 1099-R.¹⁰

Distributions from an inherited 403(b) are exempt from the 10% additional tax that normally applies to withdrawals taken before age 59½, regardless of the beneficiary’s age.¹¹ Younger beneficiaries who need immediate access to funds benefit the most from this exception.

If you take a distribution as a check made out to you rather than completing a direct rollover or trustee-to-trustee transfer, the plan must withhold 20% of the taxable amount for federal income taxes.¹² That 20% is a prepayment, not your final bill. A check made payable to the receiving plan or IRA custodian (not to you personally) avoids the mandatory withholding. Once assets are inside an inherited IRA, subsequent distributions carry a lower default withholding rate of 10%, which you can adjust using IRS Form W-4R.¹³

Most states tax retirement plan distributions as ordinary income, and combined federal and state tax on a large lump sum can easily exceed 40%. Spreading withdrawals across the 10-year window rather than bunching them into a single year keeps more of each distribution in lower marginal brackets.

Deadlines That Come Up Fast

Several deadlines run on much shorter clocks than the 10-year rule and are easy to miss.

Nine Months to Disclaim

If inheriting would create tax problems, or if you want the assets to pass to a contingent beneficiary instead, you can refuse the inheritance through a qualified disclaimer. The disclaimer must be in writing, signed, and delivered to the plan administrator within nine months of the account owner’s death.¹⁴

You cannot have accepted any benefit from the account before disclaiming; even directing a partial distribution disqualifies the disclaimer. Once validly disclaimed, the assets pass as though you never existed as a beneficiary, flowing to the next contingent beneficiary named on the account or, if none was named, to the estate. You have no say in where the disclaimed assets go. The nine-month deadline is firm.

September 30 of the Year After Death

The designated beneficiary for distribution purposes is formally determined on September 30 of the calendar year after the owner’s death.¹⁵ Anyone who was a beneficiary at the time of death but is no longer a beneficiary by that date is excluded from the calculation. When multiple beneficiaries are named, if one cashes out their share or disclaims before September 30, the remaining beneficiaries may qualify for more favorable distribution schedules based on their own status.

Account Titling for Non-Spouse Transfers

If you are a non-spouse beneficiary electing a transfer, the funds must move into an inherited IRA titled in a specific format showing both the deceased owner’s name and yours (for example, “John Doe, Deceased, for Benefit of Jane Smith, Beneficiary”). This preserves the tax-deferred status and signals to the IRS that the inherited account rules apply rather than the standard owner rules. A rollover into an account titled solely in your own name is treated as a full taxable distribution.

If You Inherit From Someone Who Already Inherited

When a primary beneficiary dies before fully distributing an inherited 403(b), the account passes to a successor beneficiary. The successor does not get a fresh set of options. The remaining balance must be emptied within 10 years, but the starting point depends on who the original beneficiary was.²

If the original beneficiary was a regular designated beneficiary, the successor must finish draining the account by the end of that original 10-year period, measured from the original owner’s death. No extension.
If the original beneficiary was an EDB using life expectancy distributions, the successor gets a new 10-year window starting from the EDB’s death. The stretch benefit does not pass along.

A successor who inherits from a regular designated beneficiary in year eight of the original 10-year period has only two years to withdraw the remaining balance.

A 403(b)-Specific Wrinkle: Pre-1987 Balances

If the plan separately tracked contributions made before 1987, those pre-1987 amounts are not subject to the standard age-73 RMD rules. Instead, the original owner’s pre-1987 balance did not need to be distributed until December 31 of the year they turned 75, or April 1 of the year after retirement if later.⁷ If the plan did not keep separate records, the entire balance follows the standard rules.

For a beneficiary, this accounting can shift the original owner’s required beginning date, which in turn determines whether the owner died “before” or “after” that date — the split that decides whether annual RMDs are required during your 10-year window. If you inherit a 403(b) that has been open since before 1987, ask the plan administrator whether pre-1987 amounts were separately tracked before you set up your distribution schedule.

1
eCFR. 26 CFR 1.401(a)(9)-4 – Determination of the Designated Beneficiary
2
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
3
Internal Revenue Service. Retirement Topics – Beneficiary
4
Internal Revenue Service. Internal Revenue Bulletin 2024-33
5
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
6
Congress.gov. Required Minimum Distribution (RMD) Rules for Original Owners
7
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
8
Federal Register. Required Minimum Distributions
9
Office of the Law Revision Counsel. 26 USC 402A – Optional Treatment of Elective Deferrals as Roth Contributions
10
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
11
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
12
Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
13
Internal Revenue Service. Instructions for Forms 1099-R and 5498 (2025)
14
eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer
15
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)