The 10-Year Rule for Inherited IRAs: Simple Explanation
The SECURE Act changed everything about inherited IRAs. Here's what the 10-year rule means for you.
Key Takeaways
- 1Most non-spouse beneficiaries must empty inherited IRAs within 10 years.
- 2The 10-year rule replaced the old "stretch IRA" for most beneficiaries.
- 3Spouse beneficiaries are exempt - they can still use stretch or spousal transfer.
- 4Eligible designated beneficiaries (disabled, minor children, etc.) also exempt.
- 5You may need to take annual RMDs within the 10 years if the original owner was already taking them.
- 6Strategic withdrawals can minimize the total tax burden over 10 years.
The 10-Year Rule: What It Means
The SECURE Act of 2019 created the 10-year rule for inherited IRAs: **You must withdraw the entire inherited IRA balance within 10 years of the original owner's death.** This replaced the old "stretch IRA" strategy where beneficiaries could take small distributions over their entire lifetime.
- Account must be emptied by December 31 of the 10th year
- Applies to traditional AND Roth inherited IRAs
- All distributions from traditional IRAs are taxable income
- Roth distributions are tax-free (if account was open 5+ years)
The 10-Year Rule Applies To
Most "designated beneficiaries" who inherited after 2019 must follow the 10-year rule:
- Adult children (most common)
- Siblings
- Friends
- Non-spouse partners
- Trusts that don't qualify as "see-through"
- Grandchildren (when parents are still alive)
Who Can Still "Stretch" the IRA
"Eligible Designated Beneficiaries" are exempt from the 10-year rule and can use their own life expectancy:
- **Surviving spouse:** Can do spousal rollover or remain as beneficiary
- **Minor children:** Until they reach age of majority (then 10-year rule starts)
- **Disabled individuals:** As defined by IRS rules
- **Chronically ill individuals:** Certified by physician
- **Beneficiaries not more than 10 years younger than deceased:** Siblings close in age, etc.
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The Confusing Part: Annual RMDs Within 10 Years
Here's where it gets complicated. The IRS clarified in 2024: **If the original owner died AFTER their RMD starting age:** You must take annual RMDs within the 10 years AND empty the account by year 10. **If the original owner died BEFORE their RMD starting age:** No annual RMDs required, just empty it by year 10.
| Owner Died | Annual RMDs Required? | Empty By |
|---|---|---|
| Before age 73 | No | Year 10 |
| After age 73 (was taking RMDs) | Yes | Year 10 |
Tax-Smart Withdrawal Strategies
How you withdraw over 10 years affects your total tax burden:
- **Spread evenly:** Take roughly equal amounts each year to avoid bracket spikes
- **Front-load in low-income years:** If you expect income to rise, take more now
- **Coordinate with other income:** Time larger withdrawals for lower-income years
- **Delay if young:** If you're in peak earning years, consider taking less now
- **Convert to Roth:** Yes, you can convert inherited traditional to inherited Roth (pay tax now, future growth tax-free)
The IRS Waived Penalties for 2021-2024, But...
Many people didn't know about the annual RMD requirement. The IRS waived penalties for those years. Starting 2025, penalties apply. If you inherited an IRA from someone who was taking RMDs, check if you need to catch up.
Make the Inherited IRA Tax-Efficient
If you're inheriting significant IRA assets, consider how you'll protect the purchasing power of mandatory withdrawals.
- Gold and silver can hedge against inflation that erodes your withdrawals
- Use inherited IRA distributions to buy physical gold outside the account
- Consider diversifying inherited assets into non-correlated investments
- Plan withdrawals around your overall tax picture
- Consult a tax professional for large inherited IRAs
Frequently Asked Questions
1Do I have to take equal amounts each year for 10 years?
No. You can take any amount in any year, as long as the entire account is empty by December 31 of the 10th year. You could theoretically take nothing for 9 years and withdraw everything in year 10 (though that creates a huge tax bill).
2What happens if I miss the 10-year deadline?
The 25% penalty for insufficient distributions applies to whatever amount you should have withdrawn. For the 10-year rule, that's the entire remaining balance. A $500,000 remaining balance = $125,000 penalty.
3Does the 10-year rule apply to inherited Roth IRAs?
Yes, but the tax treatment is different. You must still empty the account in 10 years, but distributions from an inherited Roth IRA are tax-free (assuming the 5-year rule is met). There's no tax incentive to delay.
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