Inheriting an IRA used to be a gift with a long fuse. A beneficiary could stretch withdrawals across their own life expectancy, letting a parent’s retirement account compound for decades while paying tax in small annual sips. The SECURE Act ended that for most beneficiaries of owners who died in 2020 or later, and the IRS’s final regulations in 2024 settled the details. (Inheritances from deaths before 2020 remain grandfathered under the old stretch rules, and nothing in the 2025 tax law changed any of this.) What most non-spouse beneficiaries inherit today is not a lifetime income stream. It is a tax project with a ten-year deadline.
This guide is written for the person who just inherited, or expects to. Our guide to required minimum distributions covers these rules from the original owner’s side, as a reason to plan during your lifetime. This is the other side of the table: what the rules require of you as a beneficiary, the mistakes that cannot be undone, and the one decision that actually moves the needle, which is when, within your window, you take the money.
Before Anything Else: The Mistakes You Cannot Undo
Inherited IRAs are unforgiving in a way most financial accounts are not. Three errors in the first weeks can permanently destroy the tax deferral you inherited:
Do not deposit a check made out to you personally. A non-spouse beneficiary cannot roll an inherited IRA into their own IRA, and the 60-day rollover that lets account owners fix mistakes is not available to you. If the custodian cuts a check in your name and you deposit it, the entire balance is a taxable distribution that year, and there is no mechanism to put it back. The only safe way to move inherited money is a direct trustee-to-trustee transfer into a properly titled inherited IRA.
Keep the decedent in the title. An inherited IRA must remain titled as a beneficiary account, along the lines of “John Smith IRA (deceased), for the benefit of Sarah Smith, beneficiary.” Retitling it as your own account, or letting a custodian do it by default, converts the whole thing to a distribution. Spouses are the one exception, and even they should treat that choice as a decision, not a default, as covered below.
Check whether the year-of-death RMD was taken. If the original owner died on or after their required beginning date and had not yet taken that year’s required distribution, the obligation passes to the beneficiaries. It does not die with the owner. The final regulations grant an automatic penalty waiver as long as it is taken by December 31 of the year after death, and when there are multiple beneficiaries, any one of them can satisfy it in any split. It remains one of the most commonly missed items in an estate’s first year.
One more piece of context that surprises families: unlike a taxable brokerage account, an inherited traditional IRA receives no step-up in basis. Retirement accounts are “income in respect of a decedent,” which means every pre-tax dollar inside is still waiting to be taxed, at your rates, on your schedule. That is exactly why the timing decision later in this article matters so much. One narrow exception travels with the account: if the decedent had made after-tax contributions tracked on Form 8606, that basis carries over to you and prorates across your distributions. Pull the decedent’s last Form 8606 and contribution records during estate settlement, because custodians will not track it for you.
There is one genuine piece of good news up front: distributions from an inherited IRA are never subject to the 10% early withdrawal penalty, at any age. A 45-year-old beneficiary can withdraw without penalty; the only question is ordinary income tax and when to pay it.
Which Rule Applies to You
Everything downstream depends on which category of beneficiary you are. The law splits beneficiaries into groups with very different treatment:
The five beneficiary categories and the distribution schedule each one faces.
Can treat the account as their own, or remain a beneficiary for penalty-free access before 59½.
Disabled or chronically ill individuals, and anyone not more than 10 years younger than the deceased.
Life-expectancy distributions through age 21; the account is emptied by age 31.
Empty by the end of year 10. Annual distributions required in years 1–9 if the owner had begun RMDs.
Five years if death came before the required beginning date; the owner's remaining life expectancy if after.
To put the same structure in prose: a surviving spouse has the most options of any beneficiary, including treating the account as their own. A narrow group of eligible designated beneficiaries can still stretch distributions over their own life expectancy: the owner’s minor children (only until age 21, and only the owner’s own child; a minor grandchild, niece, or nephew does not qualify and falls under the 10-year rule), disabled or chronically ill individuals, and anyone not more than 10 years younger than the deceased, which typically means siblings and peers. Most adult children and other individual heirs fall under the 10-year rule: the account must be fully emptied by December 31 of the tenth year following the year of death. A minor child of the owner takes life-expectancy distributions until 21, then the 10-year clock starts, so the account is emptied by age 31. And non-individual beneficiaries such as an estate, a charity, or a trust that fails the look-through rules get the least favorable treatment of all: a five-year window if the owner died before their required beginning date, or distributions over the owner’s remaining “ghost” life expectancy if death came after.
Two structural notes. First, these categories are set per beneficiary, and when an account has multiple beneficiaries, splitting it into separate inherited IRAs by December 31 of the year following death lets each person be treated under their own category rather than the least favorable one. Second, naming a trust as beneficiary can be the right call for minor children, spendthrift concerns, or blended families, but whether the trust qualifies for look-through treatment turns on its drafting, and that is a conversation for your estate attorney before it is a tax question.
The 10-Year Rule in Practice: One Deadline, Two Versions
For the majority of adult children inheriting today, the 10-year rule governs. But it comes in two versions, and the difference turns on whether the original owner had reached their required beginning date, which is April 1 of the year after reaching RMD age (currently 73, rising to 75 for those born in 1960 or later).
If the owner died before their required beginning date, you have no required distributions at all in years one through nine. Your only obligation is that the account hits zero by the end of year ten. The entire decade is yours to schedule.
If the owner died on or after their required beginning date, the final regulations require you to take an annual distribution in each of years one through nine, calculated from your own single life expectancy, and then empty whatever remains by the end of year ten. These annual distributions became mandatory starting in 2025; the IRS waived the penalty for the confused transition years before that. The annual amounts are usually modest. A beneficiary who is 55 in their first distribution year looks up a divisor of 31.6 on the IRS Single Life Table; on a $500,000 traditional IRA that produces a first-year requirement of about $15,800, barely 3% of the account, and the divisor then drops by one each year with no recalculation. Taking only the minimums leaves the large majority of the account, plus a decade of growth, to come out in the final years. The real event is still the year-ten balloon, and the minimum is a floor, not a plan.
Miss a required amount and the excise tax is 25% of the shortfall, reduced to 10% if you correct it within the two-year window. That is the same penalty structure that applies to regular RMDs.
Inherited Roth IRAs get the friendlier version regardless: a Roth owner is always treated as having died before their required beginning date, so there are no annual requirements, just the ten-year deadline, and distributions are tax-free as long as the original owner’s five-year clock is satisfied, a clock you inherit along with the money and that we cover in detail in our guide to the Roth five-year rules.
The Real Decision: When Within the Ten Years
Here is where most beneficiaries default their way into a worse outcome. The instinct is to wait: leave the account alone, let it grow tax-deferred, and deal with it in year ten. Sometimes that is right. Often it is exactly backwards, and the reason is that the tax on an inherited traditional IRA is not fixed. It depends entirely on which of your own tax years absorb the income.
Think of it as a placement problem. You have a known amount of ordinary income that must land somewhere in your next ten tax years, stacked on top of whatever else you earn in each of them. The goal is to place it in your cheapest years.
For an heir in their peak earning years, waiting until year ten concentrates the entire account into a single year on top of a full salary, which can push the whole balance into your highest bracket of the decade. The dollars involved are not small. In 2026, the 24% bracket for a married couple runs to $403,550 of taxable income. A couple with $150,000 of taxable income who spreads a $500,000 inherited IRA at roughly $50,000 per year keeps every inherited dollar in the 22% bracket. Taking it as a single year-ten lump pushes about half of it into the 32% and 35% brackets, roughly $30,000 in extra tax on the static comparison alone. And the real gap is wider: the account does not sit still for a decade, so the year-ten balance is meaningfully larger than $500,000, and every dollar of that growth also comes out at the top of the stack. Once growth is included, the difference between a planned drawdown and a default lump can reach six figures. And the bracket is only the first ripple: a large distribution year raises the income figure that sets Medicare surcharges two years later, can expose investment income to the 3.8% net investment income tax, can pull more Social Security into taxation, and can cost marketplace health subsidies for beneficiaries under 65.
Spreading evenly, or front-loading into any softer years, often saves meaningfully. And some heirs have genuinely cheap years coming: a planned sabbatical, a business sale year with offsetting deductions, an early retirement window before Social Security and their own RMDs begin. Those are the years the inherited income belongs in. A beneficiary who inherits at 58 and retires at 62 may want to take almost nothing in the four high-salary years and draw the account down hard in the low-income gap that follows, the same logic that drives the retirement gap years planning we describe for account owners, applied to inherited dollars. Charitably inclined beneficiaries who are 70½ or older have one more lever: qualified charitable distributions work from inherited traditional IRAs too, up to $111,000 in 2026, satisfying required amounts without the income ever touching your return.
The other side of the ledger is real too: every dollar left inside keeps growing tax-deferred, and for an inherited Roth the calculus flips entirely. With no tax due on the way out, we lean toward letting an inherited Roth ride untouched to the year-ten deadline, harvesting a full decade of tax-free growth, unless there is a pressing use for the money.
There is no rule of thumb that resolves this for traditional accounts, and we would be suspicious of anyone offering one. The answer falls out of a year-by-year projection of your own income across the window: brackets, phaseouts, Medicare surcharge thresholds if you are near 65, and the rest of your financial picture. It is a modeling exercise, and it is worth doing in year one, not year nine, because the cheap years only help if you see them coming.
Spouses: The Most Options and the Heaviest Decision
A surviving spouse is the one beneficiary who can step outside the beneficiary rules entirely, and the choice deserves more care than it usually gets, particularly because it arrives during the hardest season of a person’s life.
Treating the account as your own (by retitling or rolling it into your own IRA) puts everything on your own schedule: RMDs at your own age 73, the Uniform Lifetime Table’s smaller required amounts, your own beneficiaries. For most surviving spouses at or past 59½, this is the strong default.
Remaining a beneficiary keeps the account as an inherited IRA, and its headline advantage is access: distributions avoid the 10% early withdrawal penalty at any age. For a surviving spouse in their early 50s who needs the money to live on, staying a beneficiary preserves penalty-free access that assuming the account would forfeit until 59½. Staying a beneficiary carries two other advantages worth knowing. If the deceased spouse died before their own required beginning date, nothing is required from the account until the year they would have reached RMD age, which can mean years of full deferral after inheriting from a younger spouse. And since 2024, a sole surviving spouse who remains a beneficiary can elect to calculate any required amounts using the more favorable Uniform Lifetime Table, shrinking the forced distributions while keeping the penalty-free access.
The rollover to your own IRA can generally be made later, so the classic sequencing is: stay a beneficiary through your 50s, assume the account as your own around 59½ once the penalty question is moot. But the timing should be deliberate rather than drifting. A spouse who delays distributions as a beneficiary and rolls over late may first have to take catch-up distributions that cannot be rolled, and a spouse who simply misses a required beneficiary distribution can be deemed to have taken ownership of the account, retroactively giving up the penalty protection that motivated the choice in the first place.
The tax context around this choice is the one we wrote about in the widow’s tax penalty: the survivor soon files single, with compressed brackets and lower surcharge thresholds, on much of the same income. The account decision and the withdrawal timing decision should be made together, inside that reality.
Inheriting a 401(k) or Other Workplace Plan
The beneficiary categories and the 10-year mechanics above work the same way for a 401(k), 403(b), or governmental 457(b). What changes is the container: the plan document sets what you are actually allowed to do, and it can be stricter than the IRS, including forcing beneficiaries out faster than the law requires. For a non-spouse beneficiary there is one clean exit, a direct trustee-to-trustee rollover into an inherited IRA, which usually buys more control over timing and investments; the same rule applies that a check made out to you personally is a fully taxable distribution with no fix.
Two checks before rolling anything. If the plan holds appreciated employer stock, screen it for net unrealized appreciation treatment first, because rolling those shares into an inherited IRA forfeits that option permanently; the mechanics are in our stock compensation guide. And if the plan holds pre-tax and Roth dollars together, split the rollover, sending Roth dollars to an inherited Roth IRA and pre-tax dollars to an inherited traditional IRA, so each piece follows its own best rules. One more consideration for an heir with liability exposure: employer plan assets carry strong federal creditor protection that inherited IRAs generally lack, although some states, Texas among them, extend protection to inherited accounts by statute.
For the Owner Reading This: What It Means for Your Own Planning
If you are the account owner rather than the heir, the beneficiary rules above are the strongest argument for planning during your lifetime. A large pre-tax balance you never address does not disappear; it arrives in your children’s peak earning years as a compressed, ten-year tax bill.
Whether to do something about it, chiefly through Roth conversions in your own low-income years, depends on whose rate is actually higher. If your likely heirs are high earners who will inherit during their top-bracket years, converting at your lower retirement rates so they inherit tax-free Roth dollars can be a major win for the family as a whole. If your heirs are in modest brackets and likely to stay there, the trade reverses, and leaving the traditional IRA for them to draw at their lower rates can beat paying your higher rate to convert. The arithmetic genuinely cuts both ways, which is why we treat it as a family-level modeling question rather than a slogan. Beneficiary designations, account titling, and the trust question belong in the same review; the cleanest tax plan fails if the paperwork routes the account to the wrong rule.
Common Questions
Do I have to take money out of an inherited IRA every year?
It depends on your category and on the original owner’s age at death. Most adult children inheriting from a parent who was already taking RMDs must take annual distributions in years one through nine and empty the account by year ten. If the owner died before their required beginning date, there are no annual requirements, only the year-ten deadline. Eligible designated beneficiaries can still stretch over life expectancy.
Can I roll an inherited IRA into my own IRA?
Only a surviving spouse can. Any other beneficiary who tries converts the balance into a fully taxable distribution that cannot be undone. Inherited money moves only by direct trustee-to-trustee transfer into a properly titled inherited IRA.
Is there an early withdrawal penalty on inherited IRAs?
No. Distributions from an inherited IRA avoid the 10% early withdrawal penalty at any age. Ordinary income tax still applies to pre-tax dollars.
When is the best time to withdraw within the ten years?
In your lowest-income years, which is different for every beneficiary. Waiting until year ten by default often stacks the whole account on top of a peak salary. A year-by-year projection of your own income across the window, done early, is what surfaces the cheap years.
What about an inherited Roth IRA?
The ten-year deadline still applies to most non-spouse beneficiaries, but there are no annual required distributions, and withdrawals are tax-free as long as the original owner first funded a Roth at least five tax years before. With no tax cost to deferral, letting the account grow untouched until the deadline is usually the favorable path.
What if I inherit an account that was already inherited once?
A successor beneficiary does not restart anything and does not get eligible designated beneficiary treatment, even a spouse. If the prior owner was on a 10-year clock, you finish their clock, continuing any annual distributions they owed. If the prior owner was stretching over life expectancy, you get a fresh 10-year window from their death, layered on top of their annual distribution schedule. Confirm which clock you are on before planning a single withdrawal.
What happens if an estate or trust is the beneficiary?
Non-individual beneficiaries get the worst schedules: five years if the owner died before their required beginning date, or the owner’s remaining life expectancy if after. Trusts drafted to qualify for look-through treatment can do better, but that depends on the trust language, which is worth reviewing with your estate attorney while you are alive to fix it.