Someone who inherited a parent’s individual retirement account a few years ago may have skipped a required withdrawal and paid no price for it while the Internal Revenue Service worked out exactly how a 2019 law was supposed to apply. That grace period is over. Most people who inherited a retirement account from an owner who had already begun taking required withdrawals are now expected to take one of their own every year, and the agency has resumed charging a penalty on whatever amount goes unwithdrawn.
The ten-year clock that began with the SECURE Act
The SECURE Act, signed into law at the end of 2019, rewrote the withdrawal rules for most people who inherit a retirement account and are not the original owner’s spouse. Rather than stretching distributions across a lifetime, these beneficiaries generally must empty the account within ten years of the owner’s death. The change applies to IRAs and most employer-sponsored plans inherited from an owner who died after December 31, 2019, and it makes no difference whether the owner had already started their own required withdrawals or died before reaching that point.
A narrower group of heirs sits outside that shortened timeline. A surviving spouse, a minor child of the original account owner, someone who is disabled or chronically ill, or a beneficiary who is not more than ten years younger than the owner can still spread withdrawals across their own life expectancy instead of the ten-year window, according to the required minimum distribution guidance the IRS updated in December 2024. Everyone else falls under the shorter deadline, whether or not they take money out every single year along the way.
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Why the rule changed in practice for 2025
The Treasury Department and the IRS published final regulations spelling out how the ten-year rule actually works on July 19, 2024. A federal oversight report on that rule shows its core distribution requirements did not fully take hold until calendar years beginning on or after January 1, 2025, even though the regulations themselves became effective two months after publication. The gap between those two dates is what let many beneficiaries go a full withdrawal cycle without consequence.
Before 2025, the agency had waived any penalty for beneficiaries who should have taken an annual withdrawal in 2021 through 2024 while the rule was still being finalized, effectively treating those years as a trial period. That waiver did not carry into 2025, so an heir currently inside the ten-year window is expected to actually take the withdrawal due for the year rather than plan to catch up later, before the account has to be emptied.
The cost of missing a year
A beneficiary who fails to take the full required withdrawal by the deadline faces an excise tax of 25 percent on the amount that was not withdrawn. The IRS lowers that tax to 10 percent if the shortfall is corrected within two years, and the beneficiary reports it using Form 5329, filed with the return for the year the withdrawal was missed rather than the year it gets fixed.
The agency can also waive the entire penalty if a beneficiary shows the missed withdrawal resulted from a reasonable error and that steps are being taken to correct it, a request made by attaching a letter of explanation to Form 5329 rather than by calling the agency directly. That relief sits inside the same required-minimum-distribution guidance that now determines, year by year, whether a given inherited account actually owes a withdrawal.
Sequencing nine years of withdrawals instead of one
The ten-year rule does not simply ask an heir to remove funds by a final deadline; it generally expects a withdrawal in nine of those years and a full emptying in the tenth, sized to the beneficiary’s own life-expectancy factor at the start. Working out that year-by-year figure, and keeping it separate from a beneficiary’s own retirement accounts, is where most of the confusion around the rule actually lives, especially when an heir also has a 401(k) or IRA of their own on a different schedule.
It is a 12-page planner covering four calculators (provisional income, IRMAA tier, RMD schedule, Roth bracket fill) and the senior deduction.
See the year-by-year withdrawal order in The Retirement Tax & Withdrawal Planner.
This article was researched and drafted with the help of AI and reviewed by The Financial Wire editorial team before publication.
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.
