Americans who inherited an IRA in the last few years are entering a new phase of the rulebook. After several rounds of IRS transition relief, the agency is now enforcing the inherited IRA 10-year payout rules for distribution years beginning in 2025, which means beneficiaries who miss a required withdrawal can face a penalty that is no longer theoretical.
For many heirs, especially adult children who inherited traditional IRAs from parents, that raises a practical question: what exactly has to come out of the account each year, and what happens if nothing was withdrawn?
The answer depends on two things: when the original account owner died, and whether that person had already started taking required minimum distributions before death. That distinction has tripped up beneficiaries, custodians, and even advisers since Congress changed the law at the end of 2019.
Where the 10-year rule comes from
The 10-year rule was created by the SECURE Act, signed in late 2019. Before that law, many non-spouse beneficiaries could use the so-called stretch IRA strategy, taking withdrawals over their own life expectancy and extending tax-deferred growth for decades. Congress largely ended that option for people inheriting after 2019.
Under the current framework, most non-spouse designated beneficiaries who inherit an IRA from someone who died after December 31, 2019, must empty the account by the end of the tenth calendar year following the year of death. In plain terms, an adult child who inherited an IRA in 2020 generally has until December 31, 2030, to drain the account. An heir who inherited in 2022 generally has until December 31, 2032.
There are still exceptions. A limited class of eligible designated beneficiaries can use life-expectancy payouts instead of the standard 10-year clock. That group includes surviving spouses, minor children of the account owner until they reach majority, beneficiaries who are disabled or chronically ill, and beneficiaries who are not more than 10 years younger than the person who died.
For everyone else, the stretch IRA is gone.
The rule that caused years of confusion
The basic 10-year deadline sounds straightforward, but one part of the law created years of uncertainty: whether beneficiaries also had to take annual required minimum distributions during years one through nine, or whether they could simply wait and empty the account in year 10.
That depends on whether the original IRA owner died before or after the required beginning date for RMDs.
If the original owner died before reaching that point, a non-spouse beneficiary subject to the 10-year rule generally does not have to take annual RMDs during the first nine years. The account still must be fully distributed by the end of year 10, but the beneficiary has flexibility on timing.
If the original owner died after beginning RMDs, the picture changes. In that case, many beneficiaries subject to the 10-year rule are also expected to take annual distributions during years one through nine, then empty whatever remains by the end of the tenth year.
That difference is the reason inherited IRA planning can look very different from one family to the next. Two siblings can each inherit a similar account balance and still face different withdrawal schedules depending on the age and status of the person who died.
Why the IRS kept waiving penalties
The confusion was serious enough that the IRS repeatedly gave taxpayers a break. For missed specified inherited-IRA RMDs tied to this post-2019 rule change, the agency provided relief for 2021, 2022, 2023, and then again for 2024.
That let many beneficiaries avoid penalties while the government finalized its interpretation. The final regulations issued in 2024 kept the basic structure that had been laid out in the proposed rules and made clear that the updated framework applies for distribution calendar years beginning on or after January 1, 2025.
That is why 2026 is a more serious checkpoint for beneficiaries. The grace-period mindset no longer fits. A beneficiary who was supposed to take an inherited-IRA RMD for 2025 and did not do it may now have a penalty issue to address.
How steep the penalty can be
Congress softened the old punishment, but it is still significant.
Under SECURE 2.0, the excise tax for failing to take a required minimum distribution is generally 25% of the shortfall. If the mistake is corrected within the allowed correction window and properly reported, the rate can fall to 10%.
That is a major improvement over the old 50% penalty, but it is still enough to turn a paperwork mistake into an expensive problem. Someone who should have withdrawn $20,000 and failed to do so could be looking at a $5,000 tax if the issue is not corrected in time.
Beneficiaries generally use IRS Form 5329 to report the additional tax or to request relief. In some cases, taxpayers may still ask the IRS to waive the penalty for reasonable cause, but that is not something heirs should count on as a routine escape hatch.
Why inherited Roth IRAs are different
Inherited Roth IRAs follow the 10-year payout framework too, but their planning logic is often very different.
Because Roth IRA owners do not have lifetime RMDs, an inherited Roth IRA is generally treated as though the owner died before the required beginning date. That means most non-spouse beneficiaries are still subject to the 10-year outside deadline, but they typically do not face the same annual-distribution issue during years one through nine that applies in many traditional inherited IRA cases.
For readers who inherit a Roth IRA, that can create a valuable opportunity. If the distribution is qualified, the withdrawal is generally tax-free, so leaving the money in the account longer may preserve more tax-free growth before the year-10 deadline arrives.
Traditional inherited IRAs call for a different kind of planning. Since withdrawals are generally taxable as ordinary income, many beneficiaries are better off mapping distributions across multiple years instead of waiting until the last possible moment and risking one very large tax hit.
What beneficiaries should do now
The safest move is to stop thinking of the inherited IRA as a passive account and start treating it as a calendar-driven tax obligation.
First, confirm what kind of beneficiary you are. If you are a non-spouse beneficiary who inherited after 2019 and you do not fall into one of the eligible designated beneficiary exceptions, you are probably on the 10-year clock.
Second, determine whether the original owner had already started RMDs before death. That is the question that usually determines whether annual withdrawals are required before year 10.
Third, identify the year-10 deadline now, not later. For a 2020 inheritance, the account generally must be emptied by the end of 2030. For a 2021 inheritance, the outside deadline is the end of 2031. For a 2025 inheritance, it is the end of 2035.
Fourth, review whether a 2025 distribution should already have happened. The relief years covered earlier missed distributions, but that broad transition relief does not continue indefinitely. Waiting until the final year without checking the annual-RMD question can be an expensive mistake.
Finally, do not guess through complicated cases. Trust beneficiaries, multiple-beneficiary arrangements, and inherited accounts holding unusual assets can all introduce another layer of rules. In those situations, paying for tax advice is often cheaper than paying an avoidable penalty.
The main takeaway for 2026 is simple: the inherited IRA 10-year rule is no longer just a confusing headline or a rule advisers talk about in theory. For many beneficiaries, it is now an actively enforced tax requirement. The people who understand which deadline applies to them, and who plan withdrawals before the calendar forces their hand, are the ones most likely to avoid both surprise taxes and preventable penalties.
Paul Anderson is a finance writer and editor at The Financial Wire. He has spent seven years writing about investment strategies and the global economy for digital publications across the US and UK. His work focuses on making sense of economic policy, cost-of-living issues, and the stories that affect everyday Americans.
