Inherited Traditional IRAs: Beneficiary Rules and Taxation

Money you take out of an inherited Traditional IRA is taxed as ordinary income in the year you receive it, and federal law sets how quickly you have to empty the account based on who you are to the person who died and when they died. The rules for an inherited Traditional IRA divide beneficiaries into three groups: surviving spouses, who have the most flexibility; other individuals, most of whom now face a 10-year deadline; and entities like estates, trusts, and charities, which follow their own timelines. Getting the category wrong, or missing a required withdrawal inside it, can trigger a 25% excise tax on the shortfall.

If You Are the Surviving Spouse

A surviving spouse who is the sole beneficiary has options no one else gets. The most common is a spousal rollover: you move the assets into your own IRA, the inherited status disappears, and the money keeps growing tax-deferred until you reach your own RMD age. If you’re younger than the person who died and don’t need the money soon, this usually delays taxes the longest.¹

The alternative is to keep the account titled as an inherited IRA. This matters most when you’re under 59½ and need access to the funds. Withdrawals from an inherited IRA are not subject to the 10% early-withdrawal penalty at any age. A spousal rollover, by contrast, exposes you to that penalty on anything you take before 59½. So if you’re 52 and need the money for living expenses, keeping it as an inherited IRA gives you penalty-free access; you still owe ordinary income tax on whatever you withdraw.¹

If You Are a Non-Spouse Individual

Non-spouse individuals fall into two groups, and the group you’re in controls the timeline.

Designated Beneficiaries: The 10-Year Rule

Most individual heirs are “designated beneficiaries” — named on the account but without any special exception. The full balance has to be out by December 31 of the tenth year after the owner’s death. An owner who died in 2025 creates a deadline of December 31, 2035.²

Whether you also owe annual withdrawals during those ten years depends on when the owner died relative to their required beginning date, and that’s covered in the next section.

Eligible Designated Beneficiaries: The Life Expectancy Method

A narrow group of beneficiaries can stretch withdrawals over their own life expectancy instead of racing the 10-year clock. Federal law limits this category to five types of people:³

The surviving spouse.
A minor child of the account owner, eligible until age 21, at which point a fresh 10-year clock starts.
A disabled individual, as defined under federal disability standards.
A chronically ill individual, certified as unable to perform daily living activities for an indefinite and lengthy period.
Any individual not more than ten years younger than the deceased owner.

The status is fixed as of the date of death. If you qualify, you take annual distributions based on your life expectancy and avoid the 10-year drain.

If the Beneficiary Is an Estate, Trust, or Charity

When an estate or non-qualifying trust inherits the IRA and the owner died before their required beginning date, the 5-year rule applies: the balance must be out by December 31 of the fifth year after death, with no interim minimums.²

If the owner died on or after the required beginning date, distributions to an estate or non-qualifying trust continue based on the deceased owner’s remaining life expectancy. Charities named directly as beneficiaries generally receive the funds without owing income tax on them.

Annual Withdrawals Inside the 10-Year Window

This is the rule that surprises most beneficiaries. The 10-year rule does not always let you sit on the account for a decade. Whether you must take annual RMDs during those years turns on when the owner died relative to their required beginning date.

If the owner died before the required beginning date, you have no annual minimum. You can withdraw nothing until year ten, take equal amounts each year, or anything in between, as long as the balance is zero by the deadline.

If the owner died on or after the required beginning date, you must take an annual RMD each year of the 10-year window and empty whatever remains by the end of year ten. The “at least as rapidly” rule applies, so you inherit both the yearly obligation and the final deadline.⁴

The required beginning date is April 1 of the year after the owner turns 73 for people born between 1951 and 1959. For those born in 1960 or later, the age is 75.⁵

The IRS waived penalties for missed annual distributions in 2021 through 2024 while it finalized the regulations. That transition relief has ended. Starting in 2025, beneficiaries who skip an annual RMD when the owner died after the required beginning date face the 25% excise tax on the missed amount.⁶

The Owner’s Final-Year RMD

If the original owner had a required minimum distribution for the year of death and did not take all of it before dying, the beneficiary has to finish it. The amount is whatever the owner still owed for that year, and it must be withdrawn by December 31 of the year of death.²

This applies whether you’re a spouse, non-spouse, or entity beneficiary. It’s easy to miss during the paperwork that follows a death, and missing it triggers the same 25% excise tax as any other skipped distribution.⁷

How the Withdrawals Are Taxed

Every dollar you pull from an inherited Traditional IRA is added to your other income for the year and taxed at your ordinary federal rate. For 2026, those rates run from 10% to 37%.⁸ Nothing about the distribution qualifies for capital-gains rates.

The one real break: the 10% early-withdrawal penalty that normally hits IRA distributions before 59½ does not apply to a beneficiary’s withdrawals from an inherited IRA. You owe income tax, not the extra penalty, whatever your age.¹

The concept behind the tax treatment is income in respect of a decedent. The original owner contributed pre-tax dollars and never paid income tax on the contributions or growth, so that tax obligation passes to whoever receives the money. You step into the owner’s shoes for income-tax purposes.⁹

If the deceased owner’s estate was large enough to owe federal estate tax and the IRA was included in that taxable estate, IRC 691(c) allows a partial income-tax deduction for the portion of estate tax attributable to the IRA. It prevents the same dollars from being fully taxed at both levels. The calculation is involved, and it only applies to estates that actually paid federal estate tax.⁹

Watch Your Tax Bracket

The most common tax mistake is ignoring how a withdrawal moves you through the brackets. For a single filer in 2026, the 24% bracket begins at $105,700 of taxable income. If you already earn $90,000 and take an $80,000 distribution in a single year, part of that money is taxed at 32%.⁸

If you have the full 10-year window with no annual RMD floor, spreading the withdrawals almost always beats a lump sum at year ten. When annual RMDs are required, you can still take more than the minimum in lower-income years and only the minimum in higher-income years.

What Happens If You Miss a Required Distribution

Missing an RMD from an inherited IRA triggers a 25% excise tax on the shortfall. If the required amount was $15,000 and you took nothing, that’s $3,750 on top of the income tax you’ll eventually owe on the distribution itself.¹⁰

The penalty drops to 10% if you correct the mistake within two years. Correcting means actually taking the missed distribution and filing Form 5329 with your tax return for the year you should have taken it.⁷

If you had reasonable cause for the failure, the IRS can waive the penalty entirely. You request the waiver by attaching a written explanation to Form 5329. “I didn’t know about the rule” is harder to sell than “my custodian gave me the wrong information” or “I was seriously ill,” but the IRS does grant these waivers when the explanation holds up.

If You Die Before the Account Is Empty

Your own beneficiary becomes a successor beneficiary. Successor beneficiaries generally do not get a fresh 10-year clock; what they get depends on the category you were in.³

If you were a regular designated beneficiary under the 10-year rule, your successor must finish emptying the account by December 31 of the tenth year after the original owner’s death. They inherit whatever time was left on the clock.

If you were an eligible designated beneficiary taking life-expectancy payments, your successor must distribute the remaining balance within ten years of your death. The successor does get a 10-year window in this case, but it runs from your death, and annual distributions during that period continue using your life-expectancy factor, not theirs.

Titling the Account and Splitting Multiple Beneficiaries

An inherited IRA must be titled to show both the deceased owner and the beneficiary, in a format like “Jane Smith, deceased, IRA FBO John Smith, beneficiary.” The original owner’s name stays on the account. A non-spouse beneficiary cannot roll an inherited IRA into their own existing IRA; doing so causes a deemed distribution and makes the entire balance immediately taxable.¹¹

When more than one beneficiary is named on a single account, splitting it into separate inherited IRAs lets each person use their own timeline. The split has to be done by December 31 of the year after the owner’s death. If it isn’t, the distribution schedule defaults to the oldest beneficiary’s life expectancy, which shortens the runway for everyone else.

1
Internal Revenue Service. Retirement Topics – Beneficiary
2
Internal Revenue Service. Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs)
3
Office of the Law Revision Counsel. 26 USC 401 – Qualified Pension, Profit-Sharing, and Stock Bonus Plans
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 for 2024
7
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
8
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
9
Office of the Law Revision Counsel. 26 US Code 691 – Recipients of Income in Respect of Decedents
10
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
11
Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts