Learn About Inherited IRA Minimum Distributions

What Happens to an IRA When Someone Passes Away

When an IRA owner dies, the account doesn't simply disappear. Instead, it transfers to whoever the account owner named as a beneficiary—usually a spouse, adult child, or other family member. This is called an "inherited IRA." The money in that account continues to exist and grow, but now someone else owns it and controls what happens to it.

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The rules for inherited IRAs changed significantly in 2022 due to the SECURE Act, a federal law passed in 2019 that took effect for most people in 2022. These changes affect how much money beneficiaries must withdraw each year and when those withdrawals must begin. Understanding these rules matters because failing to take required withdrawals can result in substantial tax penalties—up to 25% of the amount you were supposed to withdraw, though this penalty can be reduced to 10% if you correct the mistake within two years.

Not all beneficiaries follow the same rules. A surviving spouse has different options than an adult child, who has different options than a grandchild or a non-relative. The type of IRA also matters: Traditional IRAs, Roth IRAs, and SEP-IRAs all have somewhat different rules for inherited accounts. Additionally, the timing of the original account owner's death—whether they had already started taking required minimum distributions (RMDs) before they died—affects what beneficiaries must do.

The goal of these rules is to prevent people from leaving money in tax-sheltered accounts indefinitely while also recognizing that different beneficiaries have different financial situations. A spouse might want to treat the inherited IRA as their own account. A young adult child might benefit from spreading withdrawals over several decades. An elderly parent inheriting an IRA might need to access funds more quickly.

Takeaway: An inherited IRA is a real asset with specific withdrawal requirements tied to federal tax law. The rules you follow depend on your relationship to the person who died, the type of IRA, and when they died.

The Ten-Year Rule and Why It's the New Standard

For most beneficiaries who inherit an IRA after 2021, the "ten-year rule" is now the primary framework. This rule states that the entire inherited IRA must be emptied by December 31 of the tenth year after the account owner's death. You can take money out however you want during those ten years—all at once, gradually, or in any pattern you choose—but everything must be withdrawn by that deadline.

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The ten-year window gives you flexibility that didn't exist before 2022. Previously, most non-spouse beneficiaries had to take something called a "required minimum distribution" (RMD) every single year based on their age and life expectancy. This meant a 25-year-old inheriting a $500,000 IRA might have been forced to withdraw only $20,000-$30,000 per year for decades, with the remaining balance staying in the tax-sheltered account. Under the new rules, that same 25-year-old can leave the money invested for years, take larger withdrawals in some years and smaller ones in others, or even wait until year nine to start withdrawing anything at all—as long as it's all gone by the end of year ten.

However, the ten-year rule comes with an important catch for Traditional IRAs and inherited SEP-IRAs: while you don't have annual RMD requirements for most of the ten years, you must still completely empty the account by the deadline. This creates a potential tax situation where you might suddenly owe income tax on a large amount of money if you haven't withdrawn funds throughout the ten years. If you inherited a $300,000 Traditional IRA and waited until year ten, you'd owe income tax on the full $300,000 (or whatever remains after any withdrawals in previous years) in that single year.

Roth IRAs have a significant advantage here. Money withdrawn from an inherited Roth IRA is typically tax-free, so there's no income tax penalty for waiting until year ten to withdraw everything. This makes inherited Roth IRAs particularly valuable to beneficiaries.

Takeaway: The ten-year rule gives most beneficiaries flexibility in when and how much to withdraw, but you must empty a Traditional IRA completely by year ten, and timing your withdrawals across multiple years can help reduce the tax impact in a single year.

Who Doesn't Follow the Ten-Year Rule

While the ten-year rule applies to most beneficiaries, several important exceptions exist. Understanding whether you fall into one of these categories is critical because the wrong withdrawal strategy could trigger unnecessary taxes or penalties.

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Surviving spouses have the most flexibility. A surviving spouse can treat the inherited IRA as their own account, rolling it into a new IRA in their name. This means the spouse doesn't have to take any withdrawals until they reach age 73 (this age increased from 72 in 2023 under a separate federal law change). Alternatively, a spouse can keep the account titled as an inherited IRA but still delay withdrawals until the deceased spouse would have reached age 73. A surviving spouse can also elect to follow the ten-year rule if that's their preference. These options are much broader than what other beneficiaries receive.

Eligible designated beneficiaries (EDBs) also receive special treatment. This category includes the deceased person's minor children (though only until the child reaches age of majority in that state, usually 18), the deceased person's parents, any beneficiary who is disabled, and any beneficiary who is chronically ill. These beneficiaries can spread withdrawals over their own life expectancy rather than being confined to the ten-year rule. This allows a disabled adult child, for example, to take smaller annual withdrawals over decades rather than facing pressure to empty the account quickly.

Individuals who inherited an IRA before 2020 may still be operating under the old "stretch IRA" rules, where withdrawals were calculated based on the beneficiary's life expectancy. These grandfathered beneficiaries have until 2032 to transition to the new ten-year rule. This means someone who inherited an IRA in 2019 might still be taking annual RMDs based on their age rather than facing the ten-year deadline.

Additionally, if the account owner had already begun taking their own required minimum distributions before they died, beneficiaries of Traditional IRAs must continue those distributions (at minimum) while the account exists. The amount might change based on beneficiary rules, but they can't simply stop withdrawals.

Takeaway: Your relationship to the deceased person and when the IRA was inherited determine which rules apply to you. Spouses have the most options, eligible designated beneficiaries can stretch withdrawals longer, and "old" inherited IRAs have transition rules.

Understanding Required Minimum Distributions After Death

Required minimum distributions, or RMDs, are minimum amounts that the IRS requires you to withdraw from certain retirement accounts each year. When you inherit an IRA, RMD rules may still apply depending on your situation, and these rules interact with the ten-year rule in important ways.

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For most non-spouse beneficiaries following the ten-year rule, annual RMDs don't apply during years one through nine. This is a major change from the old rules. However, there's an important exception: if the person who originally owned the IRA had already started taking RMDs before they died, the beneficiary must continue taking at least those same annual amounts (or potentially higher amounts, depending on the beneficiary's age) throughout the ten years. You can't simply stop RMDs and take nothing for the first nine years if the original account owner had already triggered the RMD requirement.

Another scenario involves "designated beneficiaries" who aren't spouses or eligible designated beneficiaries. These people must begin taking annual RMDs starting in year two (or sometimes year one, depending on when the IRA owner died relative to their RMD status). The RMD amount is calculated by dividing the account balance by a life expectancy factor from IRS tables. A 50-year-old beneficiary might divide the balance by roughly 35 years, requiring an annual withdrawal of about 2.9% of the account value.

The distinction between "RMD required" and "RMD not required" affects your overall financial plan. If you're younger and inherited a substantial account with no annual RMD requirement, you can