Inherited IRA 10-Year Rule: What Beneficiaries Must Know
The inherited IRA 10-year rule now governs how most non-spouse beneficiaries must withdraw money from an IRA they inherit, and recent IRS final regulations have changed the way many families need to plan around it. If you have inherited, or expect to inherit, a traditional or Roth IRA from someone other than a spouse, understanding this rule is essential to avoiding penalties and making the most of the money you have received.
At Rooney Wealth Management, we regularly help clients in Sacramento and throughout California sort through the details of inherited retirement accounts. This article explains how the rule works today, who it applies to, and the planning considerations California families should keep in mind.
What Is the Inherited IRA 10-Year Rule?
The SECURE Act of 2019 eliminated the “stretch IRA” strategy for most non-spouse beneficiaries. Before that law, a beneficiary could stretch required distributions over their own life expectancy, sometimes over several decades. Today, most non-spouse beneficiaries who are not considered an “eligible designated beneficiary” must instead empty the inherited account within ten years of the original owner’s death.
An eligible designated beneficiary, who is not subject to the 10-year rule, generally includes a surviving spouse, a minor child of the account owner, a beneficiary who is disabled or chronically ill, or a beneficiary who is not more than ten years younger than the original owner. Everyone else, including most adult children and grandchildren, falls under the 10-year rule.
Annual RMDs Within the 10-Year Window
For years, there was uncertainty about whether beneficiaries needed to take annual required minimum distributions (RMDs) during the 10-year period, or whether they could simply wait until year ten and withdraw everything at once. The IRS finalized regulations that resolved this question, and the answer depends on when the original account owner died relative to their required beginning date (RBD), the age at which they would have had to start taking their own RMDs.
Death Occurred After the Owner’s Required Beginning Date
If the original IRA owner died on or after their required beginning date, beneficiaries subject to the 10-year rule must take annual RMDs in years one through nine, calculated using the beneficiary’s own life expectancy, and the account must be fully depleted by the end of year ten.
Death Occurred Before the Owner’s Required Beginning Date
If the original owner died before reaching their required beginning date, no annual RMDs are required during the ten-year window. The beneficiary may withdraw funds on any schedule they choose, including waiting until the final year, as long as the account is fully distributed by the end of year ten.
| Scenario | Annual RMDs Required? | Deadline to Empty Account |
|---|---|---|
| Owner died on/after required beginning date | Yes, years 1-9 | End of year 10 |
| Owner died before required beginning date | No | End of year 10 |
| Eligible designated beneficiary (spouse, minor child, disabled/chronically ill, or not more than 10 years younger) | Depends on election made | Life expectancy or other permitted method |
Penalties for Missing a Required Distribution
Missing an RMD used to carry a steep 50 percent excise tax on the shortfall. That penalty has been reduced to 25 percent, and it can drop further to 10 percent if the missed distribution is corrected within two years. The IRS has also indicated it will generally waive the penalty entirely for a first-time, reasonable-cause shortfall, provided the beneficiary takes corrective action promptly. Because the rules changed several times between 2020 and 2025, we recommend beneficiaries review their distribution history carefully to confirm they are current.
California Tax Considerations
California generally follows federal treatment of traditional IRA distributions, meaning withdrawals under the inherited IRA 10-year rule are typically subject to both federal and California state income tax in the year they are received. Because a large distribution can push a beneficiary into a higher tax bracket, many families choose to spread withdrawals more evenly across the ten-year window rather than deferring everything to the final year, even when annual RMDs are not required. Reviewing your California Franchise Tax Board filing obligations alongside your federal return is an important part of this planning.
Planning Strategies to Consider
Because the inherited IRA 10-year rule interacts with your other income, tax bracket, and long-term goals, a one-size-fits-all withdrawal schedule rarely makes sense. Some beneficiaries benefit from taking larger distributions in lower-income years, such as between jobs or in early retirement. Others prefer smaller, steady withdrawals to avoid bracket creep. Beneficiaries who also hold an inherited Roth IRA should remember that, while the same 10-year deadline generally applies, qualified Roth distributions are not subject to federal income tax, which changes the calculus considerably.
Key takeaways for anyone navigating an inherited IRA include the following.
- Confirm whether the original owner passed away before or after their required beginning date, since this determines whether annual RMDs are mandatory.
- Mark the exact 10-year deadline on your calendar, as the account must be fully emptied by December 31 of the tenth year following the year of death.
- Coordinate withdrawals with your overall tax picture to avoid unnecessary bracket increases.
- Keep documentation of the original owner’s age and required beginning date, since this information is essential to applying the rule correctly.
Frequently asked questions about the inherited IRA 10-year rule
Does the 10-year rule apply to inherited Roth IRAs? Yes. Non-spouse beneficiaries who are not eligible designated beneficiaries are generally subject to the same 10-year deadline for inherited Roth IRAs, though qualified withdrawals remain tax-free.
What if I inherited the IRA before 2020? Beneficiaries who inherited before the SECURE Act took effect are generally grandfathered under the prior stretch rules.
Can I convert an inherited IRA to a Roth IRA? No. Inherited IRAs cannot be converted to a Roth IRA by a non-spouse beneficiary.
If you have inherited an IRA, or expect to in the future, we encourage you to schedule a free 30-minute call with our team to review your options and build a withdrawal strategy suited to your situation.
For additional detail on the rules discussed here, see the IRS’s Publication 590-B, the IRS RMD FAQ page, and the California Franchise Tax Board website.
Rooney Wealth Management LLC is an investment adviser registered with the state of California. This article is for educational purposes only and is not tax, legal, or investment advice. Please consult your tax or financial professional regarding your specific situation.
