What Is a Beneficiary IRA? Rules, RMDs, and Tax Treatment

A beneficiary IRA, also called an inherited IRA, is a retirement account that holds assets you received after the death of an IRA or 401(k) owner. It keeps the tax-deferred status the original owner built up, but federal law limits what you can do with it: you cannot add new money, and depending on who you are to the deceased, you may have as little as five years or as long as your own lifetime to empty the account. The rules changed significantly under the SECURE Act in 2019 and SECURE 2.0 in 2022, so older guidance about “stretch IRAs” no longer applies to most people.

What Sets a Beneficiary IRA Apart

The account is titled in a required format that names both the deceased owner and you, for example “John Doe, deceased, for the benefit of Jane Doe.” That titling preserves the tax treatment of the original account, whether it was a traditional IRA (pre-tax) or a Roth (after-tax). You choose the investments inside the account and control when withdrawals happen, subject to the deadlines below.

Two restrictions matter most. You cannot make new contributions to a beneficiary IRA.¹ And unless you are the surviving spouse, you cannot use a 60-day rollover to move the funds; the money has to travel by direct trustee-to-trustee transfer from one financial institution to another, without you ever holding it.² Take a personal distribution by mistake and you can turn the whole balance into taxable income in one shot.

Which Beneficiary Category You Fall Into

Federal law sorts beneficiaries into three groups, and your group controls your withdrawal timeline.

Eligible designated beneficiaries get the most flexibility. This group includes the surviving spouse, a child of the account owner who is under 21, anyone who is disabled or chronically ill, and anyone not more than ten years younger than the deceased owner.³ The disability standard follows the Internal Revenue Code: you must be unable to perform substantial work because of a physical or mental condition expected to last indefinitely or result in death.⁴

Designated beneficiaries are most other individuals: adult children, siblings, friends, nieces, nephews, grandchildren. They fall under the 10-year rule.

Non-designated beneficiaries are entities: estates, charities, and trusts that do not meet the see-through requirements. They face the shortest timelines, usually five years if the owner died before their required beginning date.

The 10-Year Rule

If you are a designated beneficiary and the account owner died after 2019, you must empty the inherited IRA by December 31 of the tenth year after the death.⁵ Within that window you can withdraw however you like: a lump sum, level amounts each year, or nothing until the final deadline. Whether you also owe annual withdrawals along the way is a separate question, covered below.

The 10-year rule applies to inherited Roth IRAs too. The withdrawals themselves are usually tax-free, but the deadline to empty the account still stands.

When You Also Owe Annual Withdrawals

Inside the 10-year window, one detail decides whether you must take a required minimum distribution each year: did the original owner die before or after their own required beginning date, the age at which they were supposed to start taking RMDs?

Owner died before the required beginning date: no annual withdrawals required in years one through nine. Empty the account by the end of year ten and you are done.¹
Owner died on or after the required beginning date: you must take annual RMDs in years one through nine, calculated with the IRS Single Life Expectancy Table, and clear the balance by the end of year ten.

For 2026, the required beginning date is generally tied to age 73. SECURE 2.0 raises it to age 75 for people born in 1960 or later, though that higher age will not affect anyone in practice until roughly 2035.⁶

Options if You Are the Surviving Spouse

Spouses have the widest set of choices. Three main paths exist, and you can switch between some of them over time.

Keep it as a beneficiary IRA. You take withdrawals based on the Single Life Expectancy Table. The main advantage: distributions are not subject to the 10% early withdrawal penalty, which matters if you are under 59½ and need the money.¹

Roll it into your own IRA. You treat the inherited money as your own. RMDs do not begin until you reach age 73 (or 75 if you were born in 1960 or later), and they use the more favorable Uniform Lifetime Table, which produces smaller required amounts. The trade-off: withdrawals before you turn 59½ can trigger the 10% early withdrawal penalty.⁵

Delay withdrawals. If your spouse died before reaching their required beginning date, you can wait to start taking distributions until the year your spouse would have turned 73 or 75.

Only surviving spouses can move between these strategies. A common approach: keep the account as an inherited IRA while you are under 59½ for penalty-free access, then roll it into your own IRA later to switch to the Uniform Lifetime Table.

The Life-Expectancy Method for Eligible Designated Beneficiaries

If you qualify as an eligible designated beneficiary, you can generally stretch withdrawals over your own life expectancy instead of racing the 10-year clock. Each year’s minimum is the account balance divided by a factor from the IRS Single Life Expectancy Table.⁷

Minor Children of the Account Owner

A child of the account owner qualifies as an eligible designated beneficiary only until age 21. Federal regulations fix the age of majority at 21 for this purpose, regardless of state law.⁸ Before 21, the child uses the life-expectancy method. At 21, the 10-year clock starts, so the account must be empty by age 31. Only the account owner’s own children count. Grandchildren, nieces, nephews, and stepchildren who have not been legally adopted do not qualify.

Disabled and Chronically Ill Beneficiaries

Beneficiaries who meet the federal definitions of disabled or chronically ill can use the life-expectancy method for the rest of their lives, with no 10-year cutoff. You need documentation of the condition as of the date of the account owner’s death.

How Withdrawals Are Taxed

Traditional IRA Distributions

Withdrawals from an inherited traditional IRA are taxed as ordinary income at your federal tax rate. The original contributions went in pre-tax, so the tax comes due when the money comes out. Your financial institution reports each distribution on Form 1099-R.⁹

Roth IRA Distributions

Inherited Roth withdrawals are generally tax-free because the original owner already paid income tax on the contributions. One exception: if the Roth account is less than five years old, counted from the first day of the year the owner made the initial Roth contribution, any withdrawn earnings can be subject to income tax.³

No 10% Early Withdrawal Penalty

Distributions from a beneficiary IRA are exempt from the 10% additional tax that normally applies to retirement withdrawals before age 59½, no matter how old you are or which category of beneficiary you fall into.¹ Ordinary income tax on traditional IRA withdrawals still applies; only the penalty is waived.

Deduction When the Estate Paid Federal Estate Tax

If the deceased owner’s estate was large enough to owe federal estate tax, you may be able to claim an income tax deduction for the portion of estate tax attributable to the IRA. This deduction comes from the “income in respect of a decedent” rules and prevents the same dollars from being taxed as both estate assets and income.¹⁰ The calculation is intricate, and a tax professional is worth consulting when estate tax was in play.

Penalty for Missing a Required Withdrawal

Miss a required distribution and the federal excise tax is 25% of the shortfall, the difference between what you should have withdrawn and what you actually did.⁶ Fix the miss within two years and the penalty drops to 10%.¹¹ You report the shortfall on Form 5329 with your federal return for the year of the miss.

Setting Up the Account

To open the account, the receiving financial institution needs a certified death certificate, the decedent’s identifying information (full legal name, dates of birth and death, Social Security number), your own government-issued ID and Social Security number, and, if you are inheriting through an estate or trust, letters testamentary or the trust agreement.

The inherited account has to match the tax character of the original: a traditional IRA moves into an inherited traditional IRA, and a Roth into an inherited Roth. You cannot convert inherited traditional funds to Roth during the transfer. The date of death is a critical field on the application because it starts every distribution clock that follows.

Non-spouse beneficiaries have to use a direct trustee-to-trustee transfer.¹ Spouses can also use a 60-day rollover into their own IRA, but a direct transfer is safer because there is no deadline to miss.

When a Trust Is the Beneficiary

A trust itself is not a “designated beneficiary.” But if the trust satisfies four IRS requirements, the agency looks through the trust and treats the individual trust beneficiaries as if they had been named directly. All four have to be met: the trust must be valid under state law; it must be irrevocable, or become irrevocable at the owner’s death; the individual beneficiaries must be identifiable from the trust document; and the trustee must give required documentation to the IRA custodian.¹

If the trust qualifies as a see-through, the underlying individuals follow whatever distribution rules would have applied to them personally. If it does not qualify, the IRA is treated as having a non-designated beneficiary and typically faces the five-year rule.

Refusing an Inherited IRA

You can decline the inheritance through a qualified disclaimer, which sends the assets to the next beneficiary in line. A valid disclaimer has to be in writing, signed by you, identify the interest you are refusing, and be delivered within nine months of the account owner’s death (or within nine months of your 21st birthday if you are under 21).¹² You must not have accepted any benefits from the account beforehand, and you cannot direct where the assets go. A qualified disclaimer is irrevocable once executed. Because the nine-month window is hard, professional advice before the deadline matters.

What Happens When You Die Before the Account Is Empty

If you inherit an IRA and die before finishing withdrawals, the balance goes to your successor beneficiary, and the rules tighten. A successor cannot use their own life expectancy. The remaining balance generally has to be distributed within ten years of your death, even if you were an eligible designated beneficiary using the life-expectancy method.¹ The 10-year clock runs from your death, not from the original owner’s death.

1
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
2
Office of the Law Revision Counsel. 26 U.S. Code 408 – Individual Retirement Accounts
3
Internal Revenue Service. Retirement Topics – Beneficiary
4
Office of the Law Revision Counsel. 26 USC 72 – Annuities; Certain Proceeds of Endowment and Life Insurance Contracts
5
eCFR. 26 CFR 1.401(a)(9)-5 – Required Minimum Distributions from Defined Contribution Plans
6
Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
7
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
8
eCFR. 26 CFR 1.401(a)(9)-4 – Determination of the Designated Beneficiary
9
Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.
10
Office of the Law Revision Counsel. 26 U.S. Code 691 – Recipients of Income in Respect of Decedents
11
IRS.gov. Notice 2024-35, Certain Required Minimum Distributions for 2024
12
eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer