Inherited Retirement Accounts: Rules, Ten-Year Rule, and Taxes

Inherited retirement account rules depend almost entirely on your relationship to the person who died. Federal law sorts every inheritor into one of three categories, and that category sets your withdrawal deadline, whether you owe annual required minimum distributions along the way, and what happens if you miss one. The SECURE Act of 2019 and SECURE 2.0 Act of 2022 rewrote most of the framework, replacing the old lifetime “stretch” for many beneficiaries with a hard ten-year deadline. Getting the rules wrong triggers an excise tax of up to 25 percent on the amount you should have withdrawn but didn’t.

The Three Beneficiary Categories

Your classification is locked in at the date of the account owner’s death and controls your entire distribution timeline.¹

Eligible designated beneficiaries (EDBs) get the most favorable treatment. This group is a surviving spouse, a minor child of the account owner, someone who is disabled or chronically ill, or a person not more than ten years younger than the deceased owner.
Designated beneficiaries are individuals named on the account who don’t qualify as EDBs. Adult children, siblings, friends, and most other people land here.
Non-designated beneficiaries are entities rather than people: estates, charities, and trusts that don’t meet special IRS requirements.

Disability, for these purposes, means you are unable to engage in any substantial gainful activity because of a physical or mental impairment expected to result in death or last indefinitely. Chronically ill means unable to perform at least two activities of daily living without assistance for an indefinite period. Regulations issued in 2024 clarified that a doctor’s certification can be enough; a formal Social Security Administration determination is not always required.²

Minor children are a hybrid case. A child of the account owner qualifies as an EDB only until age 21, the uniform federal cutoff regardless of state law on the age of majority.³ Grandchildren, nieces, and nephews who are minors do not qualify — they fall under the standard ten-year rule.

Options for a Surviving Spouse

Surviving spouses have the widest range of choices, and one of three paths usually fits.

Roll the Money Into Your Own IRA

The most common choice. Once you roll the inherited funds into your own IRA or other retirement account, the money is treated as if it had always been yours. Required minimum distributions don’t begin until you reach your own applicable age: 73 if you were born between 1951 and 1959, or 75 if you were born in 1960 or later.⁴ The trade-off: if you take a withdrawal before age 59½, the standard 10 percent early withdrawal penalty applies, because the account is legally yours now.

Keep It as an Inherited Account

You can leave the account in the deceased owner’s name and remain the beneficiary. Distributions from an inherited account are exempt from the 10 percent early withdrawal penalty regardless of your age, which is especially useful for younger surviving spouses who may need the money before 59½.⁵ If the original owner hadn’t started RMDs, you can delay distributions until the year the deceased would have reached their applicable age. If the owner had already started them, you continue distributions based on your own life expectancy.¹

The Section 327 Election

SECURE 2.0 added a third option. A surviving spouse who keeps the account as an inherited IRA can elect to be treated as if they were the deceased employee for distribution purposes.⁶ This lets you use the Uniform Lifetime Table, which produces smaller required withdrawals than the Single Life Table used by other inherited-account holders, while keeping the penalty exemption for early withdrawals. You can always roll the account into your own IRA later if circumstances change.

The Ten-Year Rule

If you’re an adult child, sibling, friend, or any other individual who doesn’t qualify as an EDB, the whole account must be emptied by December 31 of the year containing the tenth anniversary of the owner’s death.⁶ This applies to traditional IRAs, Roth IRAs, and employer plans like 401(k)s.

Whether you also owe annual withdrawals during those ten years depends on when the original owner died relative to their required beginning date (the date they were first required to start taking RMDs themselves):

If the owner died before their required beginning date, no annual minimums apply. You can take as much or as little as you want in any given year, provided the account is empty by the end of year ten.
If the owner died on or after their required beginning date, you must take annual RMDs in years one through nine, calculated using your own life expectancy, and the remaining balance still has to be out by the end of year ten.²

The IRS finalized this annual-RMD-plus-ten-year framework in 2024 after several years of confusion and temporary waivers. Plenty of online guidance still says no annual distributions are needed during the ten-year window; that’s only correct when the deceased hadn’t yet started RMDs. Skipping the annual withdrawal when it was actually required exposes you to the excise tax discussed below.

Who Can Still Stretch Distributions for Life

Eligible designated beneficiaries keep the older, more generous option: annual distributions based on their own life expectancy, letting the remaining balance grow tax-deferred (or tax-free in a Roth) for potentially decades.¹

Disabled and chronically ill beneficiaries can stretch distributions over their full lifetime. Beneficiaries not more than ten years younger than the deceased owner can do the same, a provision that mostly benefits siblings and long-term partners close in age. A minor child of the account owner uses the life expectancy method until age 21, and then the ten-year clock starts on whatever is left.³ A child who inherits at age 5 could stretch withdrawals until age 31.

Estates, Trusts, and Accounts With No Named Beneficiary

When an entity inherits the account, the SECURE Act’s ten-year rule doesn’t apply. Non-designated beneficiaries follow the pre-SECURE framework:

If the owner died before their required beginning date, the account must be emptied within five years.¹
If the owner died on or after that date, distributions continue over the deceased owner’s remaining life expectancy calculated at the time of death.

Estates end up as beneficiaries either because the owner named the estate directly or because no valid beneficiary designation was on file. Either way, this is usually the worst outcome: a shorter timeline, probate delays, and potential income tax at compressed trust and estate rates. Outdated designations cause similar trouble. A former spouse still listed on a 401(k) will generally receive those funds regardless of what a will or divorce decree says, because beneficiary designations on retirement accounts override wills in most situations.

A trust can preserve better tax treatment if it qualifies as a “see-through” trust. Four requirements apply: the trust must be valid under state law, it must be irrevocable or become irrevocable at the owner’s death, its beneficiaries must be identifiable, and the required documentation must be provided to the plan administrator.⁷ When those are met, the IRS looks through the trust to the individual beneficiaries underneath to set the timeline. When they aren’t, the account is treated as having a non-designated beneficiary and gets the shorter five-year or life-expectancy rule.

Inherited Roth IRAs

The distribution timelines above apply to inherited Roth IRAs the same way they apply to traditional accounts. The difference is tax treatment.¹

Withdrawals of contributions from an inherited Roth IRA are always tax-free. Withdrawals of earnings are also tax-free as long as the original owner’s Roth had been open for at least five years before their death. If the account was younger than that, the earnings portion may be subject to income tax, though contributions still come out tax-free.

Because Roth withdrawals are generally tax-free, there’s less reason to spread them out for tax-bracket management. Many beneficiaries subject to the ten-year rule wait until late in the window to withdraw, letting the balance grow tax-free as long as possible. Just don’t miss the deadline.

How the Money Is Taxed

For traditional IRAs and pre-tax employer plans, distributions are included in your gross income and taxed as ordinary income in the year you receive them.¹ A large inherited balance taken in one year can push you into a higher bracket, which is why spreading distributions across the ten years usually makes sense with traditional accounts.

Distributions from inherited accounts are exempt from the 10 percent early withdrawal penalty that normally applies before age 59½.⁵ This applies to all beneficiaries. The one important exception is a surviving spouse who rolls the account into their own IRA: it loses inherited status and the penalty exemption disappears.

The custodian issues a Form 1099-R each year for what you withdraw, in your name and taxpayer identification number rather than the deceased owner’s.⁸

Missing a Required Distribution

Failing to take a required distribution by the deadline triggers an excise tax of 25 percent on the shortfall, meaning the difference between what you should have withdrawn and what you actually took.⁹ You report it on Form 5329 with your federal tax return for the year you missed.³

There’s a meaningful escape valve. If you correct the shortfall within the correction window, generally two years, and file an updated return reflecting the fix, the penalty drops to 10 percent.⁹ SECURE 2.0 added this reduced rate and replaced the older process of requesting a full waiver from the IRS. Fixing a missed distribution quickly is worth real money.

What Happens If You Die Before Draining the Account

If a beneficiary dies before fully distributing an inherited account, the remaining balance passes to a successor beneficiary, and the rules are less forgiving.

When an EDB using the life expectancy method dies, the successor doesn’t get to restart the stretch. The successor has ten years from the EDB’s death to empty the account.⁶ When a designated beneficiary already on the ten-year clock dies, the successor steps into whatever time remains, not a fresh ten years. An adult child who inherits under the ten-year rule and dies in year four leaves their heirs six years to finish.

How to Actually Claim the Account

Gather a certified copy of the death certificate, the deceased’s Social Security number and full legal name, the account number from a recent statement, and a government-issued photo ID for yourself. Contact the financial institution and request its beneficiary claim form. Most large custodians offer these through their website or a dedicated estate services department.

The form asks how you want the account handled: open an inherited IRA in your name, roll over to your own account if you’re a spouse, or take a lump-sum distribution. Non-spouse beneficiaries who want to preserve tax-deferred status must use a direct trustee-to-trustee transfer into an inherited IRA rather than receiving a check and trying to redeposit it.¹⁰ The new account is titled in a format like “John Smith, deceased, for the benefit of Jane Smith, beneficiary.”

Pay attention to the tax withholding section. If you don’t specify a preference, custodians are generally required to withhold at least 10 percent of distributions from traditional accounts for federal income tax.¹¹ You can request more, or opt out, but you have to say so on the form. Once the custodian validates the paperwork, typically in a week or two, the funds move to the new account.

1
Internal Revenue Service. Retirement Topics – Beneficiary
2
Federal Register. Required Minimum Distributions
3
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
4
Congress.gov. Required Minimum Distribution (RMD) Rules for Original Owners
5
Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
6
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
7
Internal Revenue Service. Internal Revenue Bulletin 2024-33
8
Internal Revenue Service. Instructions for Forms 1099-R and 5498
9
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Plans
10
Office of the Law Revision Counsel. 26 USC 402 – Taxability of Beneficiary of Employees Trust
11
Vanguard. Helping You Make Sense of Tax Withholding Rules for Your IRA