Your mother passed away in 2021 at age 74, leaving you a $500,000 traditional IRA. She had been taking required minimum distributions for years. You rolled nothing over, took nothing out, and heard the IRS was waiving penalties while it sorted out the rules. That grace period is over. Starting with the 2025 tax year, the IRS can charge a 25% excise tax on every dollar you should have withdrawn but didn’t. On a missed distribution of $20,000, that penalty is $5,000, owed on top of the income tax you’ll still pay when the money eventually comes out.
“A lot of beneficiaries heard about the penalty waivers and assumed the problem went away,” said Mark Luscombe, a principal federal tax analyst at Wolters Kluwer Tax & Accounting, in a May 2026 interview. “It didn’t. The 2025 distribution year is the first one where the full 25% excise tax is back on the table.”
The rules are final, the stakes are real, and as of mid-2026, many heirs still don’t realize the clock is ticking.
How the 10-year rule works after the SECURE Act
The SECURE Act, signed into law in December 2019, killed the so-called “stretch IRA” for most non-spouse beneficiaries. Under the old system, an heir could spread distributions over their own life expectancy, sometimes across decades. The new law replaced that with a hard 10-year liquidation window: the entire inherited account must be emptied by December 31 of the tenth year after the original owner’s death.
For heirs who inherited in 2020, that deadline falls at the end of 2030. For a 2021 inheritance, it’s the end of 2031. Each subsequent death year pushes the wall back by one calendar year.
A narrow group of “eligible designated beneficiaries” can still use the old stretch rules. That group includes surviving spouses, minor children of the deceased (until they reach the age of majority), individuals who are disabled or chronically ill, and beneficiaries no more than 10 years younger than the original owner. Everyone else, including adult children, falls under the 10-year clock.
The confusion started almost immediately. The statute was ambiguous about whether heirs also owed annual minimum distributions during that 10-year window, or whether they could simply wait and take everything in year 10. The answer depends on one critical fact: whether the original account owner had already reached their “required beginning date” for RMDs before they died.
The annual RMD requirement most heirs missed
When the original owner died on or after their required beginning date, the IRS’s final regulations require the beneficiary to take annual distributions in years one through nine of the 10-year period, then drain whatever remains in year 10.
The required beginning date is generally April 1 of the year after the owner reached RMD age. That age has shifted in recent years: it was 72 for those who reached that age between 2020 and 2022, then rose to 73 under the SECURE 2.0 Act for those turning 73 after December 31, 2022. It will rise again to 75 starting in 2033. Which threshold applies depends on when the original owner was born, so heirs need to check the specific age that governed their parent’s or relative’s account.
The annual amounts are calculated using the beneficiary’s single life expectancy (from the IRS tables in Publication 590-B), divided into the prior year-end account balance, and recalculated each year.
When the original owner died before reaching their required beginning date, no annual distributions are required. The heir simply must empty the account by the end of year 10, on whatever schedule they choose.
That distinction is the crux of the problem. The IRS did not finalize its interpretation until it published T.D. 10001 in the Federal Register on July 19, 2024. Those final regulations confirmed the annual sub-distribution requirement and took effect for distribution calendar years beginning on or after January 1, 2025.
Three years of penalty relief, now expired
Recognizing the confusion its own delayed rulemaking had caused, the IRS issued a series of notices waiving the excise tax on missed annual RMDs from inherited accounts. Notice 2022-53 covered 2021 and 2022. Notice 2023-54 extended relief through 2023. And Notice 2024-35, published on April 16, 2024, pushed the waiver through the 2024 distribution year.
Each notice used nearly identical language: the IRS “will not treat a beneficiary of an employee or IRA owner who died on or after the employee’s or IRA owner’s required beginning date” as having failed to take the correct RMD for the covered year. The IRS’s own beneficiary information page still summarizes this relief for 2021 through 2024.
No equivalent relief has been announced for 2025 or beyond. As of June 2026, absent a new notice or legislation, the 25% excise tax under 26 U.S.C. § 4974 applies in full to any shortfall between the required annual distribution and the amount actually withdrawn.
The penalty math, and how to reduce it
The excise tax is mechanical. If your required distribution for 2025 is $18,000 and you take nothing, you owe 25% of $18,000, or $4,500, reported on IRS Form 5329. That penalty is separate from the ordinary income tax you will owe when the money is eventually distributed.
There is a safety valve. The SECURE 2.0 Act, passed in December 2022, reduced the excise tax from its previous 50% rate to 25% and created a further reduction to 10% if the beneficiary corrects the shortfall during the “correction window.” That window generally runs from the start of the tax year in which the RMD was missed through the earlier of the date a notice of deficiency is mailed or the date the tax is assessed. In practice, a beneficiary who realizes the mistake and withdraws the missed amount before filing their return for that year can often qualify for the lower 10% rate.
One point that trips people up: the waiver years did not erase the distributions themselves. The account balance still must be fully depleted by the end of year 10, and any amounts not taken during 2021 through 2024 effectively compress the remaining withdrawal schedule. An heir who took nothing during those four years now faces larger required pulls in 2025 through the final liquidation year.
Inherited Roth IRAs play by different rules
Inherited Roth IRAs are still subject to the 10-year liquidation requirement, but they do not require annual distributions during that period, regardless of whether the original owner had reached RMD age. That is because Roth IRA owners are never subject to lifetime RMDs under current law, so the “owner died after required beginning date” trigger never fires.
A beneficiary who inherits a Roth IRA can let the account grow tax-free for the full 10 years and take everything out at the end with no annual penalty risk. The entire distribution is also generally tax-free, provided the Roth account satisfied its five-year holding period before the owner’s death.
That said, inherited Roth balances are still included in the deceased owner’s taxable estate for federal estate tax purposes, a detail that matters for larger inheritances but is often overlooked.
Gaps that still leave heirs guessing
Several practical questions remain unresolved heading into mid-2026.
The IRS has not disclosed how many inherited IRA or employer-plan accounts fall under the annual-RMD version of the 10-year rule. Without that data, the scale of potential penalty exposure across the country is impossible to estimate.
Brokerage firms and retirement plan recordkeepers have not publicly confirmed whether their systems will automatically calculate and flag annual RMDs for inherited accounts under the final regulations. Some custodians historically sent RMD reminder notices for inherited IRAs, but it is unclear whether those practices will be universal or consistent across the industry. Beneficiaries who assume their custodian will handle the math may be taking a risk.
There is also a significant awareness gap. Many heirs who inherited accounts in 2020 or 2021 were told, accurately at the time, that the IRS was not enforcing penalties on missed distributions. Some interpreted that as a permanent change rather than a temporary reprieve. With no requirement that the IRS or custodians notify beneficiaries when the relief period ends, some people will likely continue their prior behavior and discover the penalty only when they file their tax return or receive an IRS notice.
On the legislative front, no pending bill in Congress as of June 2026 specifically addresses extending the inherited-IRA penalty waiver or modifying the annual distribution requirement. Heirs should not plan around the possibility of another reprieve.
Steps affected heirs should take before the 2025 filing deadline
The first step is determining which rule set applies to your inherited account. The key variables are: (1) the year the original owner died, (2) whether the owner had reached their required beginning date for RMDs, (3) whether the account is a traditional or Roth IRA (or an employer plan such as a 401(k) or 403(b), where the plan document may impose stricter distribution schedules than the IRS minimum), and (4) whether you qualify as an eligible designated beneficiary.
If you inherited a traditional IRA or plan account from someone who died after 2019 and who had already started RMDs, you almost certainly owe an annual distribution for 2025. The amount is based on your single life expectancy and the account’s prior year-end balance, calculated using the IRS tables in Publication 590-B.
If you discover you have already missed a required distribution for 2025, withdrawing the shortfall as quickly as possible and filing Form 5329 with a request for the reduced 10% rate is the most direct path to limiting the damage.
Given the complexity of the final regulations and the lack of detailed IRS examples for post-2024 scenarios, working with a tax professional who tracks inherited-IRA rules closely is not optional for most people in this situation. The regulatory framework took five years to finalize and left millions of heirs guessing along the way. The penalty for continuing to guess is now 25% of every dollar you should have taken out but didn’t.
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.
