If you’ve received an IRA from a parent, you have two main jobs: move it into a properly titled inherited IRA in your name, and withdraw the full balance within 10 years of your parent’s death. You can’t roll an inherited IRA from a parent into your own retirement account, and you can’t leave it sitting indefinitely. How you time the withdrawals across that decade, and whether the account is traditional or Roth, decides how much of the inheritance you keep.
Claiming and Transferring the Account
Before any money moves, the IRA custodian needs to verify your identity and your right to the assets. Have these ready when you call:
- A certified copy of your parent’s death certificate (not a photocopy).
- Your government-issued ID.
- Your parent’s Social Security number.
- IRS Form W-9 with your own taxpayer identification number.1Internal Revenue Service. About Form W-9
The custodian will also have you complete their own beneficiary claim form. Paperwork typically takes a few weeks.
The assets have to move by trustee-to-trustee transfer into a new inherited IRA titled in a specific way, usually something like “Jane Smith, deceased, IRA FBO John Smith, beneficiary.” The account keeps your parent’s name because the IRS tracks it separately from your own retirement savings.2Internal Revenue Service. Rollovers of Retirement Plan and IRA Distributions
Federal law prohibits non-spouse beneficiaries from rolling an inherited IRA into a personal IRA. If you pull the money out and try to redeposit it into your own account, the withdrawal becomes a taxable distribution and the redeposit is treated as an excess contribution subject to further penalties.3Office of the Law Revision Counsel. 26 USC 408 – Individual Retirement Accounts The money must travel directly between financial institutions without passing through your hands.
At transfer, you can usually keep the existing investments in place or sell everything first and move cash. No tax is triggered either way until you actually take a distribution out of the inherited IRA.
The 10-Year Deadline
For deaths in 2020 or later, most adult children are subject to the 10-year rule. You must empty the entire account by December 31 of the tenth year after your parent’s year of death.4Internal Revenue Service. Retirement Topics – Beneficiary If your parent died in 2025, every dollar has to be out by December 31, 2035. The deadline applies to both traditional and Roth inherited IRAs.
Whether you also have to take annual withdrawals along the way depends on one fact about your parent: whether they had started required minimum distributions before they died. Establish this early.
Whether You Must Take Annual Withdrawals
If Your Parent Had Started Required Distributions
Your parent’s required starting age was either 72 or 73, depending on birth year. If they reached 72 before January 1, 2023, the starting age was 72; otherwise, 73.5Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The age rises to 75 in 2033.
If your parent died after reaching their starting age, you must take annual minimum distributions during the first nine years and empty whatever remains by the end of year 10. The IRS finalized this reading in regulations effective January 1, 2025.6Internal Revenue Service. Notice 2024-35 – Certain Required Minimum Distributions The agency had waived penalties for missed annual withdrawals from 2021 through 2024, but that grace period is over. If you inherited during those years and haven’t been taking annual distributions, start now.
If Your Parent Died Before Required Distributions Began
You have more flexibility. There’s no annual withdrawal requirement inside the 10 years. You can take money whenever you want, in whatever amounts you want, as long as the account is empty by the end of year 10.4Internal Revenue Service. Retirement Topics – Beneficiary You could take nothing for nine years and cash out in year 10, though that usually creates a painful tax bill on a traditional IRA.
The Penalty for a Missed Withdrawal
Fall short of a required distribution and the excise tax is 25 percent of the amount you should have taken but didn’t. Catch it and withdraw the correct amount inside the IRS correction window and the penalty drops to 10 percent.7Office of the Law Revision Counsel. 26 USC 4974 – Excise Tax on Certain Accumulations in Qualified Retirement Plans On a $50,000 shortfall, that’s the difference between $12,500 and $5,000. Fix errors fast.
How Traditional IRA Withdrawals Are Taxed
Every dollar you withdraw from an inherited traditional IRA is ordinary income for the year you receive it.8Internal Revenue Service. Publication 590-B (2025), Distributions From Individual Retirement Arrangements (IRAs) It stacks on your wages and other income, which means large withdrawals can push you into a higher bracket. For 2026, federal rates run from 10 percent on the first $12,400 of taxable income for single filers up to 37 percent on income above $640,600.9Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
One piece of good news: inherited IRA distributions are not subject to the 3.8 percent net investment income tax that hits investment gains for higher earners. The IRS specifically excludes IRA distributions from that surtax.10Internal Revenue Service. Questions and Answers on the Net Investment Income Tax
The income bump can trigger a less obvious cost, though. If you’re 65 or older and on Medicare, Part B and Part D premiums are tied to your modified adjusted gross income. A large distribution in one year can push you above the IRMAA thresholds and raise premiums for the following calendar year. Younger beneficiaries won’t face this; retirees inheriting from a parent in their 90s should plan around it.
After-Tax Basis Passes to You
Some IRA owners contributed money that was already taxed because they couldn’t deduct it in high-income years. If your parent had that kind of after-tax basis, you inherit it, and that portion of each withdrawal isn’t taxed again. You have to file Form 8606 with your return to claim the basis and avoid paying tax twice.11Internal Revenue Service. 2025 Instructions for Form 8606 Check your parent’s prior tax returns or the custodian’s records for any history of nondeductible contributions.
Inherited Roth IRA
A Roth is a much better tax picture. Contributions went in after tax, so withdrawals of both contributions and earnings are generally tax-free as long as the account was open at least five years before your parent’s death.4Internal Revenue Service. Retirement Topics – Beneficiary Most Roths clear that bar easily, because the five-year clock starts when the owner first funded any Roth IRA.
If the account is less than five years old, contributions still come out tax-free, but earnings are taxable. The 10-year deadline still applies. Because there’s usually no tax cost to waiting, the common play is to let the money grow tax-free and withdraw the full balance near the end of year 10.
Your custodian will issue a Form 1099-R for each year you take a distribution, taxable or not.12Internal Revenue Service. About Form 1099-R Report Roth distributions on your return to head off IRS inquiries.
Strategies to Reduce the Tax Bill
For a traditional inherited IRA, how you time withdrawals over 10 years can save you tens of thousands of dollars. Cashing out in one lump forces all the income into a single year and can push a big chunk into the 32 or 37 percent bracket. Spreading withdrawals more evenly keeps more of the money in lower brackets.
The simplest approach: divide the balance by the number of remaining years and take roughly equal annual distributions. On a $500,000 traditional IRA, taking about $50,000 a year for 10 years is almost always more tax-efficient than letting it grow and pulling $500,000-plus in year 10. Equal distributions tend to produce the lowest total tax for most beneficiaries.
Look for low-income years to take more. A year between jobs, unpaid leave, or early retirement is a good time to draw down. In a big-income year (a bonus, a property sale), pull less, as long as you meet any required minimum. Keep total taxable income as steady as you can from year to year.
If you’re also running Roth conversions on your own retirement accounts, coordinate. Both create ordinary income, and stacking aggressive conversions on top of inherited IRA withdrawals in the same year can backfire.
Who Is Exempt From the 10-Year Rule
Not every child is stuck with the 10-year clock. The law recognizes “eligible designated beneficiaries,” who can stretch withdrawals over their own life expectancy:4Internal Revenue Service. Retirement Topics – Beneficiary
- A minor child of the account owner takes life-expectancy distributions until age 21, and the 10-year clock then starts. The account must be empty by the end of the year the child turns 31.
- A child who is disabled or chronically ill can stretch distributions over their own life expectancy with no 10-year deadline.
- A child no more than 10 years younger than the parent qualifies for life-expectancy distributions. Uncommon in parent-child inheritances, but it happens when a parent had a child later in life.
If you qualify but are already on the 10-year track, contact the custodian. Switching to life-expectancy distributions can dramatically cut annual tax exposure.
Splitting the Account Among Siblings
When a parent names more than one child, the IRA can be split into separate inherited accounts, one per sibling. Each account then runs on its own 10-year clock, and each sibling controls their own withdrawal timing and tax rate, which matters when incomes differ.
The deadline to establish separate accounts is December 31 of the year following the year of death. Miss it, and the distribution schedule defaults to rules tied to the oldest beneficiary, which may be worse for younger siblings. The custodian needs everyone’s paperwork before it can process the split, so start the conversation with your siblings early.
Disclaiming the Inheritance
If you don’t need the money and would rather it pass to someone else, such as a sibling in a lower tax bracket or your own children, you can disclaim all or part of the inheritance. A valid disclaimer must be in writing, delivered to the custodian within nine months of your parent’s death, and you cannot have already accepted any benefit from the account. You’re then treated as though you died before your parent, and the assets pass to the next beneficiary in line.
Disclaimers are irrevocable, and you don’t get to choose who inherits next. That’s set by the account’s beneficiary designation or the custodian’s default rules. It’s worth considering when the inheritance would create a heavy tax burden for you but a lighter one for the next person up.
Creditor Protection Is Limited
Your own IRA is generally protected from creditors in bankruptcy. An inherited IRA is not. The Supreme Court ruled unanimously in 2014 that inherited IRAs don’t qualify as “retirement funds” under the Bankruptcy Code because the beneficiary can access the money at any time and isn’t saving it for their own retirement.13Justia Law. Clark v Rameker, 573 US 122 (2014) File for bankruptcy and the inherited IRA balance is reachable by creditors.
Some states have enacted their own protections for inherited IRAs that go beyond federal bankruptcy law. If you carry heavy debt or work in a high-liability profession, ask an attorney about state-specific protections before deciding how quickly to draw the account down.
The IRD Deduction for Large Estates
For 2026, the federal estate tax exemption is $15,000,000 per individual.14Internal Revenue Service. Whats New – Estate and Gift Tax Most inherited IRAs won’t cross that line. But if your parent’s total estate exceeded the exemption and federal estate tax was actually paid on the IRA assets, you may qualify for the income in respect of a decedent (IRD) deduction.
The IRD deduction offsets a portion of the income tax on your inherited IRA distributions by the estate tax already paid on those same assets.15Office of the Law Revision Counsel. 26 USC 691 – Recipients of Income in Respect of Decedents Without it, the same money would effectively be taxed twice. It’s an itemized deduction not subject to the 2 percent floor, and calculating it requires knowing the exact estate tax attributable to the IRA. The executor or estate attorney should be able to give you the figure if the estate filed a federal return.
Name Your Own Beneficiary
Once the inherited IRA is set up, name a beneficiary for it. If you die before the 10-year window closes, that person becomes a successor beneficiary and must empty whatever’s left by the end of your original 10-year deadline, not a new one.4Internal Revenue Service. Retirement Topics – Beneficiary Without a named beneficiary, the account may fall into your estate and get distributed under the custodian’s default rules, which can shorten the tax-deferral runway.