Inherited an IRA? The 10-Year Rule Has a Catch Most People Miss

A lot of people inherited IRAs after 2019 and made the same assumption: they have ten years to take the money out, so they’ll wait and pull everything at the end. Clean and simple.

It’s not that simple — and the IRS is now enforcing the rules that say so.

The SECURE Act Changed Everything

Before 2020, most non-spouse IRA beneficiaries could “stretch” an inherited IRA over their own life expectancy. If you were 40 when you inherited it, you could spread distributions over 40+ years, keeping most of the money growing tax-deferred.

The Setting Every Community Up for Retirement Enhancement Act (the “SECURE Act,” signed December 2019) ended that for most beneficiaries. If you inherited a traditional IRA from someone who died after December 31, 2019, the entire account must be distributed by December 31 of the tenth year following the year of death.

Inherit a $400,000 IRA in 2021? It has to be fully distributed by December 31, 2031.

The Part Most People Get Wrong

Here’s where a lot of people have a problem: they think the 10-year rule just means they have until year 10 to withdraw everything, with full flexibility each year in between.

That’s only half-true — and it depends on one critical factor: had the original account owner already started taking Required Minimum Distributions?

The IRS calls the date when RMDs must begin the “Required Beginning Date,” which is April 1 of the year following the year the account owner turned 73. If the original owner died after their Required Beginning Date — meaning they were already taking distributions — you as the beneficiary also have to take annual RMDs from the account in years 1 through 9, in addition to emptying it by year 10.

The rule: the inherited IRA must keep moving. You can’t let it sit for nine years and then take everything at once.

If the original owner died before their Required Beginning Date (they hadn’t yet started RMDs), you’re in better shape — you have full flexibility on the timing within the 10-year window, as long as the account is empty by the deadline.

The Penalty for Missing Annual Distributions

The penalty for a missed Required Minimum Distribution is 25% of the amount you were supposed to take out. If you were required to take $30,000 from the inherited IRA in 2025 and took nothing, you owe $7,500 — on top of the income tax you’ll eventually pay on the distribution itself.

The penalty drops to 10% if you correct the error within two years (the “correction window”). So there is a path to fix a missed distribution, but it requires action, not waiting.

The IRS waived penalties for missed inherited IRA RMDs for 2021 through 2024 while the rules were being finalized. That waiver is over. Starting with 2025 distributions, the IRS expects beneficiaries to be in compliance.

Who Gets to Stretch (and Who Doesn’t)

Not everyone is subject to the 10-year rule. The IRS created a category of “Eligible Designated Beneficiaries” (EDBs) who kept the old stretch rules. EDBs include:

• The surviving spouse of the decedent
• A minor child of the decedent (though the 10-year rule kicks in once they reach majority)
• Someone who is disabled or chronically ill
• Any beneficiary who is no more than 10 years younger than the deceased account owner

If you fall into one of those categories, you can still stretch distributions over your life expectancy. Everyone else — including adult children, grandchildren, and most other non-spouse heirs — is subject to the 10-year rule with the annual distribution requirement if the owner had passed their Required Beginning Date.

What About Inherited Roth IRAs?

A Roth IRA has no Required Beginning Date because Roth accounts don’t require distributions during the owner’s lifetime. As a result, if you inherit a Roth IRA, the 10-year rule applies, but you don’t have to take annual distributions during the 10-year window. You can let the account grow tax-free and take everything in year 10 if you want.

Still, you have to empty it by year 10. The flexibility on timing is different, but the final deadline is the same.

The Tax Planning Side of This

Inheriting an IRA doesn’t just create an obligation — it creates an opportunity if you approach it right.

You have control, within the rules, over how much you take each year and in which years. If you’re in a lower income year, pull more. If you had a big income year with bonuses or a business sale, pull less. The goal is to avoid being forced into a large taxable distribution in year 10 when your income may already be high.

For context: a $400,000 inherited IRA taken entirely in year 10 could easily push someone into the 32% or 37% federal bracket for that year. The same $400,000 spread across 10 years — even without tax-free growth — creates a much smoother tax picture.

The planning is relatively straightforward once you know what year the original owner died, their age at death, and your own income trajectory over the next decade — the kind of multi-year mapping we build into tax planning and preparation. If you already have a SEP-IRA or Solo 401(k) you’re contributing to, that’s another factor in the mix. This comparison between the SEP-IRA and Solo 401(k) is worth a read if you’re still deciding how to fund your own retirement alongside managing an inherited account.

The SECURE Act changed the rules in a way that affects a lot of families. The people who get hurt are the ones who wait too long and don’t realize the annual distribution requirement existed.

This post is for general informational purposes only and does not constitute legal or tax advice. Inherited IRA rules depend on the type of account, the relationship to the deceased, and the decedent's age and RMD status at death. Consult a qualified tax professional to determine the correct distribution schedule for your situation.