Inherited IRA rules: what beneficiaries need to know

Marcus found out he'd inherited his aunt's IRA from a letter that looked like junk mail. It came from a brokerage he'd never used, addressed to him "as beneficiary," and it asked him to "select a distribution option" by a date that was three weeks away. He called the number on the letter and the representative asked whether he wanted a lump sum, an inherited IRA, or to disclaim. Marcus said he'd call back. Then he sat in his car in the grocery store parking lot and tried to remember if his aunt had ever mentioned any of this.

If you've been named on someone's retirement account, the inherited IRA rules decide how fast you have to take the money out and how much of it goes to taxes. They changed a lot in 2020 and again with IRS regulations finalized in 2024, so advice from a relative who inherited one in 2015 may no longer apply. This guide covers who gets which options, the 10-year rule, the yearly withdrawals that catch people off guard, and the mistakes that are hard to undo. Tax situations vary, so treat this as a starting point and check the specifics with a tax professional before you move any money.

How inherited IRA rules work in plain English

An inherited IRA is a retirement account that passes to a named beneficiary when the owner dies. The money doesn't go through the will or probate. It goes to whoever is listed on the account's beneficiary form, and federal tax law then sets a deadline for withdrawing it.

The deadline depends on two things: your relationship to the person who died, and whether they had already started taking required minimum distributions (RMDs) before they died. Those two facts sort almost every beneficiary into one of a few groups, and once you know your group, the rest gets much simpler.

It also helps to know that the beneficiary form wins over the will. If your aunt's will left everything to her church but her IRA named you, the IRA is yours. Our guide to beneficiary designations explains why, and why those forms so often go out of date.

Which group are you in?

Under the SECURE Act, which applies to IRA owners who died on or after January 1, 2020, beneficiaries fall into a few categories with different rules.

The surviving spouse has the most flexibility. A spouse can roll the account into their own IRA and treat it as if it had always been theirs, or keep it as an inherited IRA, which can make sense for a younger spouse who needs to spend some of the money before age 59½.

Then there's a group the IRS calls "eligible designated beneficiaries." Besides the spouse, it includes:

A minor child of the account owner (not a grandchild), until they turn 21
Someone who is disabled or chronically ill, as the IRS defines it
Someone not more than 10 years younger than the person who died, like a sibling close in age or a partner who wasn't married to the owner

These beneficiaries can generally stretch withdrawals over their own life expectancy, which keeps the yearly taxable amount smaller. A minor child switches to the 10-year rule once they turn 21.

Everyone else is a "designated beneficiary," and that's most adult children, grandchildren, nieces and nephews. For you, the 10-year rule applies. Marcus, at 41 and 30 years younger than his aunt, was in this group.

Finally, if the IRA has no beneficiary listed, or names the estate, the account usually ends up being paid out to the estate on a faster schedule, sometimes within five years. This is one of the strongest arguments for keeping your own beneficiary forms current.

If the person died before 2020, the older rules apply and you may still be able to "stretch" the account over your lifetime. The IRS page on retirement plan beneficiaries has a chart that sorts this out by year of death and type of beneficiary.

The 10-year rule and the yearly withdrawals inside it

If you're a non-spouse designated beneficiary, you must empty the inherited IRA by December 31 of the tenth year after the year the owner died. Someone who died in March 2026 leaves an account that must be fully withdrawn by the end of 2036.

When the rule first came out, most people read it as "take the money out any time in those 10 years." That's true only in one situation. The IRS's final regulations, published in 2024, say that if the original owner had already reached their required beginning date for RMDs (age 73 for most people alive today), you also have to take a minimum withdrawal in each of years one through nine. Then you empty whatever is left in year ten.

So the timing of the death matters a lot:

If your parent died at 68, before they had to start RMDs, you can generally withdraw on any schedule you like, as long as the account is empty by the end of year ten.
If your parent died at 80 and was already taking RMDs, you need an annual withdrawal based on your life expectancy, every year, plus the final cleanup in year ten.

The IRS waived penalties for missed annual withdrawals from 2021 through 2024 while it finalized these rules. Starting in 2025, they're enforced. Your brokerage will often calculate the amount for you, but not always, and the responsibility is yours either way. IRS Publication 590-B includes the life expectancy tables used for the math.

One more catch: if the owner died late in the year without taking that year's own RMD, the beneficiary has to take it before December 31. People who inherit in November or December miss this all the time.

What about an inherited Roth IRA?

Roth IRAs follow the same 10-year deadline for most non-spouse beneficiaries, but there are no annual withdrawals in years one through nine, because Roth owners never have RMDs. Withdrawals are usually tax-free if the original Roth was at least five years old. Many beneficiaries leave an inherited Roth alone until near the end of the ten years so it can keep growing tax-free.

Taxes on an inherited IRA

Every dollar you take out of an inherited traditional IRA counts as ordinary income in the year you withdraw it. It lands on your own tax return, at your own rate, on top of your salary. You won't owe the 10% early withdrawal penalty no matter how old you are. That penalty doesn't apply to inherited accounts.

The biggest tax decision is how to spread the withdrawals out. Take a $300,000 inherited IRA. Pull it all out in one year and much of it could be taxed in the 32% or 35% bracket. Take roughly $30,000 a year over ten years and a lot of it may stay in a lower bracket. Many people time larger withdrawals for lower-income years, like a gap between jobs, a sabbatical, or the first years of retirement.

Lump sums can also cause side effects you might not expect, like higher Medicare premiums two years later, reduced college financial aid for your kids, or losing eligibility for some tax credits. That's a good reason to spend an hour with a tax preparer before you choose a lump sum.

If you're also the executor and handling the person's final tax return, keep the two separate. The IRA isn't part of the estate for tax purposes once it passes to a named beneficiary. Our guide to filing taxes for a deceased person covers the return that belongs to them.

Mistakes that are hard to undo

Most of the expensive errors with inherited IRAs happen in the first few weeks, while people are still grieving and the paperwork feels like one more thing in a pile. I'd slow down here more than anywhere else.

The worst one is taking a check. If you're not the spouse and you ask the old brokerage to cash out the account so you can "move it" to your own bank, the IRS treats that as a full distribution, taxable that year. Non-spouse beneficiaries can't do a 60-day rollover. The money has to move by direct trustee-to-trustee transfer into a new account titled as an inherited IRA, usually something like "Jane Smith, deceased 3/14/2026, FBO Marcus Smith." Some families have triggered a five-figure tax bill this way just by filling out the wrong form.

The second is rolling an inherited IRA into your own existing IRA. Again, only a spouse can do that. A non-spouse who mixes the money in may have made an excess contribution, which comes with its own penalty.

The third is missing a required withdrawal. The penalty is 25% of the amount you should have taken, cut to 10% if you fix it within two years. You can also ask the IRS to waive it on Form 5329 if you have a reasonable explanation, and the IRS's RMD FAQ page explains how to request that.

The last one is quieter. Some beneficiaries never claim the account at all, because they don't know it exists. If you're handling a parent's affairs, look through a year of mail and tax forms for anything from a brokerage, insurer, or old employer, especially Form 5498 or 1099-R. Our executor duties guide walks through how to track down accounts like these.

What to do in the first 90 days

There's rarely a reason to rush. Unless the owner died late in the year with an RMD still owed, you usually have until the end of the following year before anything is due. These steps keep your options open in the meantime:

Get several certified death certificates. The custodian will need one along with their claim form.
Call the IRA custodian and ask for the beneficiary claim packet. Ask directly whether the owner had started RMDs and whether this year's RMD was taken.
Decide whether you want the money at all. You can disclaim an inherited IRA within nine months of the death, and it then passes to the next beneficiary as if you had died first. People sometimes do this so the money goes to a sibling who needs it more, or to their own children.
Open an inherited IRA, often at the same custodian, and have the funds transferred directly. If several siblings inherit one IRA, ask to split it into separate inherited IRAs by December 31 of the year after the death so each person can follow their own schedule.
Sit down with a tax professional to plan withdrawals across the full window.

None of this needs to happen the week of the funeral. Marcus waited a month, opened an inherited IRA at the same brokerage, and moved the money without touching it. He and his accountant settled on modest withdrawals every year, larger ones in the two years his wife planned to be home with their new baby, and a final cleanup in year ten.

Making it simpler for whoever inherits yours

Looking at this from the other side, a lot of beneficiaries' stress comes from not knowing the account exists, or what the person who left it had in mind. A short note can help a great deal. You can list which accounts have beneficiaries and who they are, whether you were already taking RMDs, and maybe a sentence about what you hoped the money would do for them. Then double-check that every form names a real person and a backup.

If you want somewhere to keep that account list together with the note itself, When I Die Files works well for it. Your niece gets the facts she needs to call the brokerage, and she also gets to read why you chose her.

Marcus did eventually find a note from his aunt, tucked in a recipe box his cousin mailed him months later. It didn't say anything about IRAs. It said she'd always liked that he called her on her birthday even when he was busy, and she hoped he'd use some of it to take his kids somewhere warm. He says that part made the tax planning feel less like paperwork, and the family went to Puerto Rico the following spring.