Anyone who inherits a traditional IRA from a family member who died after 2019 now faces a hard deadline and a steep penalty for missing it. Congress rewrote the rules through the SECURE Act of 2019, replacing the old “stretch” option with a 10-year window that forces most non-spouse beneficiaries to drain the entire account by the end of the tenth calendar year after the original owner’s death. Any balance left after that deadline is treated as an excess accumulation, and the excise tax on that shortfall is 25 percent.
Why the 10-year drain rule hits heirs right now
Before 2020, a child or sibling who inherited an IRA could spread withdrawals across their own life expectancy, sometimes stretching distributions over decades and keeping the annual tax hit small. The 2019 legislation eliminated that approach for most designated beneficiaries. The law carved out narrow exceptions only for “eligible designated beneficiaries,” a category limited to surviving spouses, minor children of the account owner, individuals who are disabled or chronically ill, and beneficiaries not more than 10 years younger than the deceased owner.
Everyone else, including adult children who are the most common heirs of retirement accounts, must follow the 10-year rule. That creates a real tax planning problem: pulling out a large IRA balance in a compressed window can push heirs into higher income-tax brackets in each distribution year. The question of whether heirs with larger accounts choose to liquidate early and accept the immediate tax cost, rather than risk the 25 percent penalty at the back end, remains unanswered because no public IRS enforcement data on 10-year-rule compliance exists yet.
IRS final regulations and the 25 percent excise tax
The penalty framework sits in federal regulation. Under 26 CFR 54.4974-1, any amount that should have been distributed but was not triggers an excise tax of 25 percent of the shortfall. That rate can drop to 10 percent if the beneficiary corrects the missed distribution within a defined correction window, but the default consequence is the higher rate.
Confusion over whether annual required minimum distributions apply during the 10-year window, or whether heirs simply need to empty the account by year 10, persisted for years after the law took effect. The IRS offered interim relief through Notice 2022-53, waiving penalties for certain missed annual distributions while it finalized the rules. That interim period ended when the agency published final regulations in Internal Revenue Bulletin 2024-33, which largely retained the proposed framework and confirmed that beneficiaries of owners who had already begun taking required distributions must continue annual withdrawals in addition to emptying the account by year 10.
IRS Publication 590-B for 2025 spells out the mechanics: the post-death distribution regime depends on whether the original owner died before or after the required beginning date, whether the beneficiary qualifies as “eligible,” and whether the account is a traditional or Roth IRA. For many non-spouse heirs of traditional IRAs, this means a combination of annual required minimum distributions and a final clean-out by the end of year 10. Failing either requirement can create an excess accumulation subject to the excise tax.
How heirs can correct mistakes and seek relief
The law does offer a partial safety valve. If a beneficiary discovers a missed distribution and withdraws the shortfall within the correction window, the excise tax rate can drop from 25 percent to 10 percent. In addition, taxpayers can request a waiver of the remaining excise tax by demonstrating to the IRS that the shortfall was due to reasonable error and that they are taking steps to remedy it. This relief is not automatic; it must be affirmatively requested.
To pursue that kind of relief, heirs typically file Form 5329 and may attach a written explanation of the circumstances. While many people work through a tax professional, individual taxpayers can also track the status of their filings or any resulting penalties using the IRS’s online account tools. The agency’s online account system allows individuals to view balances, notices, and certain penalty assessments tied to their Social Security number.
Estate executors and others dealing with inherited retirement accounts on behalf of a decedent may also need to monitor business-related filings when the estate has a separate taxpayer identification number. In those situations, the IRS provides a separate business account portal that can help track assessments or correspondence linked to the estate or any related entity. Keeping an eye on these records is one way to ensure that required distributions are properly reported and that any penalty relief requests are processed.
Planning ahead to avoid the penalty
The combination of a rigid 10-year window and a 25 percent excise tax makes proactive planning essential. Heirs who expect to inherit significant traditional IRAs may want to coordinate with the original owner while they are still alive, exploring strategies such as partial Roth conversions, charitable bequests of IRA assets, or naming eligible designated beneficiaries who can still use life-expectancy payouts.
After inheriting, beneficiaries should map out a multi-year withdrawal plan that balances tax brackets, other income sources, and the year-10 deadline. For some, taking larger distributions in low-income years or spreading withdrawals evenly across the decade can reduce the risk of both bracket creep and last-minute shortfalls. The key is understanding that inaction now can translate into a sizable excise tax later, at precisely the moment when heirs expect to be benefiting from, not paying for, the legacy left to them.
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David M. Keller is a finance writer based in Columbus, Ohio, covering personal finance and consumer-focused economic topics. He earned his degree in journalism from Ohio University and began his career reporting on local business and economic trends for a regional media outlet. Since then, he has contributed to a variety of online publications, focusing on clear, practical coverage of topics such as cost of living, debt, and everyday financial decision-making.
