Inheriting an IRA used to come with decades to spread out withdrawals and the tax bill that comes with them. For most people who inherit one today, that flexibility is gone. Under the rule that took hold with the SECURE Act and was locked in by IRS final regulations, most beneficiaries who are not the account owner’s spouse now have to empty the entire inherited account within 10 years of the owner’s death — and missing the deadline can trigger a penalty on whatever is left.
Who actually falls under the 10-year rule
The 10-year rule applies to what the IRS calls a “designated beneficiary” who is not also an “eligible designated beneficiary.” A designated beneficiary is simply a person named on the account; an eligible designated beneficiary is a narrower group carved out for extra protection — 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 10 years younger than the original owner. Everyone else who inherits an IRA as a named individual beneficiary — adult children, grandchildren, siblings, and most other relatives or friends — is a non-eligible designated beneficiary and is bound by the 10-year deadline. An estate, charity, or certain trusts that don’t qualify as a “designated beneficiary” at all face an even tighter timeline in some cases, tied to five years or the deceased owner’s remaining life expectancy depending on when the owner died relative to their required beginning date.
The clock runs to December 31 of the year containing the 10th anniversary of the owner’s death. There’s no requirement to take anything out in years one through nine — the account can sit and grow — but the entire balance must be gone by that final deadline. In practice, many beneficiaries who wait until year 10 to withdraw everything at once end up pushing a large lump sum into a single tax year and a higher bracket, which is why financial planners generally recommend spreading withdrawals across the window rather than waiting.
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The twist: some non-eligible beneficiaries also owe annual withdrawals
The most commonly missed detail is that the 10-year window is not automatically a “wait until year 10” window for everyone. Under the IRS’s final regulations, if the original account owner had already reached their required-minimum-distribution age before dying, most non-eligible designated beneficiaries must take annual RMDs during years one through nine of the 10-year period, in addition to fully distributing the account by year 10. Skipping those annual withdrawals in the years they’re required, and not the owner’s original death, is what has tripped up many beneficiaries who assumed the whole balance could sit untouched until the deadline.
If the original owner died before reaching their required beginning date, no annual RMDs are required during the 10-year window — the beneficiary can distribute the account any way they like, including waiting until the final year, as long as it’s fully emptied by the deadline.
What eligible designated beneficiaries get instead
Spouses generally have the most flexibility: a surviving spouse can treat an inherited IRA as their own, roll it into an existing IRA, or stretch distributions over their own life expectancy. Minor children of the original owner can stretch distributions over their own life expectancy only until they reach the age of majority, at which point the 10-year clock starts running on whatever remains. Disabled or chronically ill beneficiaries, and beneficiaries within 10 years of the deceased owner’s age, can also stretch distributions over their own life expectancy for as long as that status holds.
The penalty for missing a required withdrawal
Failing to take a required distribution — whether it’s an annual RMD during the 10-year window or the final full distribution by the 10-year deadline — exposes the shortfall to an excise tax under the tax code. The IRS generally applies this penalty to the amount that should have been withdrawn but wasn’t; the rate can be reduced significantly if the mistake is corrected within a defined correction window, so a missed withdrawal is worth fixing quickly rather than ignoring. The IRS has provided some administrative relief for beneficiaries confused by the phase-in of the new annual-RMD requirement in earlier years, but that relief was transitional and does not excuse a beneficiary from the underlying 10-year emptying deadline itself.
Why the rule matters more for retirement-age beneficiaries
For an older beneficiary who inherits an IRA from a parent or sibling close in age, the interaction between the 10-year rule and their own tax bracket can be significant. Withdrawals from a traditional inherited IRA count as ordinary income in the year taken, so ten years of forced withdrawals layered on top of Social Security, pension income, or a beneficiary’s own RMDs can push someone into a higher bracket than they’d otherwise be in — or affect Medicare’s income-related premium surcharges. Because the rule leaves some room for beneficiaries to choose which years to draw down more heavily within the 10-year span, working with a tax professional on the timing, rather than defaulting to either “take nothing until year 10” or “spread it evenly,” is often the difference between a manageable tax bill and an unnecessarily large one.
This article was researched and drafted with the assistance of AI and reviewed by The Financial Wire editorial team.
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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.
