What Is the 5-Year Rule for Inherited IRAs: Penalties and Waivers

The 5-year rule for inherited IRAs requires certain beneficiaries to empty an inherited IRA by December 31 of the fifth year after the original owner’s death. It applies to a narrow group: estates, charities, and trusts that don’t qualify as “see-through” trusts, and only when the original owner died before their required beginning date for distributions. Most people who inherit an IRA are not subject to this rule; they fall under the 10-year rule instead.

Who the 5-Year Rule Actually Applies To

The IRS calls the affected group “non-designated beneficiaries.” A non-designated beneficiary is any beneficiary that isn’t a living individual. In practice, that means three things:

An estate, which is what receives the IRA when no beneficiary was named on the account.
A charity or other nonprofit named as the beneficiary.
A trust that doesn’t meet the IRS rules for looking through to the individuals inside it.

These entities have no life expectancy the IRS can measure, and life expectancy is normally what sets the pace of required withdrawals from an inherited retirement account. Without one, the IRS substitutes a fixed 5-year deadline.¹

There’s one condition that has to be met before the 5-year rule kicks in: the original owner must have died before reaching their required beginning date. That’s April 1 of the year after the owner turns 73 under current law, rising to 75 for people who turn 73 after December 31, 2032.² If the owner had already passed that date, non-designated beneficiaries follow a different schedule based on the deceased owner’s remaining single life expectancy rather than the 5-year deadline.³

How the 5-Year Clock Runs

The name is slightly misleading. The clock starts on January 1 of the year after the owner’s death and runs through December 31 of the fifth year after that. If the owner died in March 2025, the account has to be at zero by December 31, 2030, which is roughly five years and nine months of actual time.¹

Inside that window there are no annual withdrawal requirements. You can take the entire balance in year one, spread it evenly, or wait until the last day. The only hard rule is that the balance reaches zero by the final December 31.

You May Be Looking for the 10-Year Rule Instead

A lot of people who search for the 5-year rule are actually subject to the 10-year rule, which was created by the SECURE Act of 2019 and covers most people who inherit an IRA from someone other than a spouse. The 10-year rule applies to individual beneficiaries who aren’t in a protected category: an adult child, a sibling, a friend, or another relative named on the account. It gives them until December 31 of the tenth year after the owner’s death to empty the account.⁴

A smaller group called “eligible designated beneficiaries” can still stretch distributions over their own life expectancy. That group includes surviving spouses, minor children of the deceased owner (until they reach the age of majority), beneficiaries who are disabled or chronically ill, and beneficiaries who are no more than 10 years younger than the deceased owner.⁴

One wrinkle worth knowing if you’re under the 10-year rule: if the original owner died on or after their required beginning date, the IRS now requires you to take annual distributions during the 10-year period, not just empty the account by year 10. That requirement took effect for the 2025 tax year.¹

What a Lump-Sum Withdrawal Costs You in Tax

Every dollar withdrawn from an inherited traditional IRA is taxed as ordinary income in the year you receive it, added on top of your wages or other income.⁴ That’s the tax-planning problem at the heart of the 5-year rule: waiting until year five and pulling a large balance in one lump can push you into brackets you’ve never touched before.

For 2026, the federal brackets for single filers run from 10 percent on the first $12,400 of taxable income up to 37 percent on income above $640,600.⁵ A beneficiary who normally earns $80,000 and pulls a $300,000 inherited balance in a single year would see much of it taxed at the 32 and 35 percent rates instead of the 22 percent rate they’re used to. Spreading the same total over three or four years keeps more of each distribution in a lower bracket. Most states with an income tax also tax these distributions.

If you’re on Medicare, a big withdrawal year can also trigger an Income-Related Monthly Adjustment Amount (IRMAA) on your Part B and Part D premiums. IRMAA is set from your modified adjusted gross income two years earlier. For 2026, the standard Part B premium is $202.90 a month for single filers with income at or below $109,000, and it climbs to $689.90 a month at incomes above $500,000.⁶ IRA distributions aren’t directly subject to the 3.8 percent Net Investment Income Tax, but a spike in your MAGI can push your other investment income above the NIIT threshold.¹

Inherited Roth IRAs follow the same 5-year timeline, but qualified distributions come out tax-free, so bracket creep and IRMAA aren’t concerns. There is one condition: the original owner has to have satisfied a separate 5-year holding period, measured from January 1 of the first tax year they contributed to any Roth IRA. If they opened the Roth in 2021 and died in 2024, that holding period isn’t satisfied until January 1, 2026. Earnings withdrawn before then can be taxable, though the 10 percent early-withdrawal penalty doesn’t apply to distributions taken after the owner’s death.¹

The Penalty for Missing the Deadline

If any balance is left in the inherited IRA after the December 31 deadline, the IRS imposes a 25 percent excise tax on the amount that should have been withdrawn. On a $100,000 leftover balance, that’s a $25,000 penalty.⁷

The 25 percent rate was reduced from 50 percent by SECURE 2.0. If you catch the mistake and withdraw the missing amount inside the correction window, the penalty drops to 10 percent. The correction window closes at the earliest of three events: when the IRS mails a notice of deficiency, when the IRS assesses the tax, or the last day of the second tax year after the year the penalty was triggered.⁷

The excise tax is reported on IRS Form 5329, filed with your annual return, and it applies whether the missed deadline was intentional or an honest mistake.

Asking for a Waiver

The IRS can waive part or all of the excise tax if you can show the shortfall was due to reasonable error and you’re taking steps to fix it. You attach a written statement of explanation to Form 5329, enter “RC” and the amount you want waived on the dotted line next to the relevant penalty line, subtract that amount from the total shortfall, and report the result.⁸ You still owe ordinary income tax on the distribution itself. If the reasonable-cause request is denied but your compliance record is otherwise clean, the IRS may apply first-time penalty abatement.⁹

How a Trust Can Avoid the 5-Year Rule

A trust named as an IRA beneficiary is treated as a non-designated beneficiary by default, which is what pulls it into the 5-year rule. A properly drafted trust can escape that treatment by meeting four IRS conditions, at which point the agency looks through the trust and treats the individuals inside it as the designated beneficiaries. Those individuals then follow whichever rule fits them, usually the 10-year rule.

The trust is valid under the laws of the state where it was created (or would be valid except that it has no assets yet).
The trust is irrevocable, or becomes irrevocable by its own terms when the IRA owner dies.
The individual beneficiaries of the trust’s interest in the IRA can be identified from the trust document itself.
The trustee provides the required trust documentation to the IRA custodian.¹

Miss any one of the four, and the trust falls back into non-designated status. If the owner died before their required beginning date, the 5-year clock starts.

1
Internal Revenue Service. Publication 590-B (2025), Distributions from Individual Retirement Arrangements (IRAs)
2
Internal Revenue Service. Retirement Topics – Required Minimum Distributions (RMDs)
3
Internal Revenue Service. Required Minimum Distributions for IRA Beneficiaries
4
Internal Revenue Service. Retirement Topics – Beneficiary
5
Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
6
Centers for Medicare & Medicaid Services. 2026 Medicare Parts A and B Premiums and Deductibles
7
Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans
8
IRS.gov. 2025 Instructions for Form 5329 – Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts
9
Internal Revenue Service. Administrative Penalty Relief