Inheriting an IRA is often a gift wrapped in a moment of grief. Along with everything else you’re handling, you’re suddenly responsible for an account with its own set of rules, deadlines, and tax considerations. And if you’ve tried to look those rules up, you’ve probably noticed they’ve changed several times in the last few years.
You’re not alone if it feels confusing. Here’s a clear walkthrough of how inherited IRAs work today, what the 10-year rule means, and why some beneficiaries now need to take distributions every year.
What Changed
Before 2020, most beneficiaries could “stretch” distributions from an inherited IRA over their own lifetime, taking small amounts each year and letting the rest continue to grow.
The SECURE Act of 2019 ended the stretch for most beneficiaries when the original owner died in 2020 or later. In its place came the 10-year rule. Then, after several years of uncertainty, the IRS issued final regulations in 2024 that clarified when beneficiaries must also take annual distributions within that 10-year window. Those annual requirements took effect in 2025.
If you inherited an IRA from someone who died before 2020, the older rules generally still apply to you.
Step One: Which Type of Beneficiary Are You?
The rules that apply to you depend on your relationship to the original owner.
- Eligible designated beneficiaries have the most flexibility and can often still take distributions over their life expectancy. This group includes a surviving spouse, the original owner’s minor child (until they reach 21), a beneficiary who is disabled or chronically ill, and anyone not more than 10 years younger than the original owner.
- Designated beneficiaries are individuals who don’t fall into one of those groups, such as most adult children, grandchildren, nieces, nephews, and friends. This is the group the 10-year rule applies to.
- Non-designated beneficiaries, such as an estate, a charity, or certain trusts, follow separate rules that depend on when the original owner died.
Step Two: How the 10-Year Rule Works
If you’re a designated beneficiary, the entire inherited IRA must be distributed by December 31 of the 10th year after the year the original owner died. For example, if the owner died in 2026, the account must be empty by the end of 2036.
Whether you also need to take distributions each year along the way depends on one key question: had the original owner already started taking RMDs?
If the owner died before their required beginning date, meaning they hadn’t yet reached the age when RMDs start, you have flexibility. You can take distributions whenever you like during the 10 years, as long as the account is empty by the deadline.
If the owner died on or after their required beginning date, you must take an annual RMD in years one through nine, based on your own life expectancy, and then withdraw whatever remains by the end of year 10.
This second scenario is where many beneficiaries get caught off guard. For several years, the IRS waived penalties for missed annual distributions while the rules were being finalized. That relief has ended, and annual distributions are now required.
What About the Year of Death?
If the original owner was already taking RMDs and hadn’t taken their full distribution for the year they passed away, the beneficiary is generally responsible for taking it by the end of that year.
Special Options for Surviving Spouses
Surviving spouses have the most choices. A spouse can often treat the inherited IRA as their own, roll it into their own IRA, or remain a beneficiary of the inherited account. Each option affects when RMDs begin and how distributions are taxed, so it’s worth reviewing carefully with a tax advisor before deciding.
Inherited Roth IRAs
Roth IRAs are treated a little differently. Because Roth owners are never required to take RMDs during their lifetime, most non-spouse beneficiaries of an inherited Roth IRA don’t need to take annual distributions. The account still needs to be emptied within 10 years, but qualified distributions are generally tax free.
When the Inherited IRA Holds Alternative Assets
For self-directed accounts, the 10-year rule brings an extra layer of planning. A rental property, private note, or LLC interest doesn’t convert to cash on its own, and by the end of year 10, those assets need to be out of the inherited IRA.
A few things to keep in mind:
- Retitling comes first. The account and its assets need to be retitled as an inherited IRA for your benefit. This keeps it separate from your own retirement accounts.
- You can’t roll it into your own IRA. Unless you’re a surviving spouse, an inherited IRA must remain its own account, and moving it to another custodian generally requires a direct transfer rather than a 60-day rollover.
- Plan your exit early. You can sell the asset inside the inherited IRA and distribute cash, or distribute the asset itself in-kind. Either way, starting early gives you control over timing instead of racing a deadline.
- Values still matter. Year-end valuations drive any annual RMD and help you plan your distributions over the full 10 years.
- Consider spreading out the tax. Distributions from an inherited traditional IRA are taxed as ordinary income. Waiting until year 10 to take everything at once could push you into a much higher tax bracket, so many beneficiaries work with their CPA on a multi-year plan.
For Account Owners: Help Your Beneficiaries Now
If you own a self-directed IRA, one of the kindest things you can do is make sure your beneficiaries know what your account holds. Keep your beneficiary designations current with us, and consider leaving a simple summary of your investments, key contacts, and where to find documents.
How MidAtlantic IRA Can Help
If you’ve inherited a self-directed IRA, our team can walk you through the paperwork to establish your inherited account and help you understand what’s needed to manage the assets inside it.
Because inherited IRA rules depend on your specific situation, we strongly recommend working with a CPA or tax advisor before making any decisions. MidAtlantic IRA doesn’t provide tax, legal, or investment advice, but we’re here to help you through the process with care.
Recently inherited an IRA? Schedule a call with our team and we’ll help you take the first step.