Inherited IRA Rules After the SECURE Act
The rules for inherited IRAs changed dramatically with the SECURE Act of 2019 (effective January 1, 2020) and SECURE 2.0 (2022). Before the SECURE Act, most non-spouse beneficiaries could "stretch" distributions over their lifetime using the life expectancy method, deferring taxes for decades. The SECURE Act eliminated this for most beneficiaries, replacing it with a 10-year rule that requires the account to be fully distributed by December 31 of the tenth year after the year of inheritance.
The key distinction is between Eligible Designated Beneficiaries (EDBs) — who can still use the life expectancy stretch — and everyone else. EDBs include: the surviving spouse; minor children of the deceased (until age 21, then the 10-year rule applies); disabled individuals; chronically ill individuals; and individuals not more than 10 years younger than the deceased. Any other beneficiary (most adult children, siblings, non-spouse partners) must use the 10-year rule.
The 10-Year Rule: What It Actually Requires
A common misconception about the 10-year rule: it does NOT require equal annual distributions. The only hard requirement is that the account must be entirely distributed by December 31 of the tenth year. For non-RMD-age decedents (under 73), beneficiaries can take any amount in any year — even skipping years entirely — as long as the account reaches zero by year 10. However, if the original owner had already begun required minimum distributions (reached age 73), a 2022 IRS clarification states that non-EDB beneficiaries must also continue annual RMDs in years 1–9 and empty the remainder in year 10.
The optimal distribution strategy under the 10-year rule depends on your tax situation. Spreading distributions evenly over 10 years often minimizes total tax owed by keeping each year's income in a lower bracket. But if you expect your income (and tax rate) to be significantly lower in certain years — sabbatical, early retirement, business loss — concentrating withdrawals in those years can reduce the total tax burden substantially.
Spouse Beneficiary: Special Options
Surviving spouses have the most flexibility. A spouse can: roll the inherited IRA into their own IRA (treating it as their own account, subject to their own RMD schedule at age 73); remain the beneficiary and take RMDs based on the deceased spouse's schedule; or for Roth IRAs, roll over and avoid RMDs entirely during their lifetime. In most cases, rolling over to your own IRA is the most tax-efficient choice, as it resets the RMD clock to the spouse's own age 73, preserving additional years of tax-deferred growth. The exception: if you're younger than 59½ and need the money immediately, keeping it as an inherited IRA allows penalty-free withdrawals before 59½.
Roth vs Traditional Inherited IRAs
Inherited Roth IRAs follow the same 10-year distribution rule for non-EDB beneficiaries. The critical difference: Roth distributions are tax-free (as long as the account has been open for 5+ years). This means beneficiaries of inherited Roth IRAs have flexibility to withdraw at any time without tax consequences within the 10-year window, and there's no tax-optimization strategy needed. However, the growth inside the Roth IRA is also tax-free, so waiting until year 10 to take a lump sum from a well-invested Roth can maximize tax-free wealth. Traditional inherited IRAs face ordinary income tax on all distributions, making the timing strategy critical.
Penalties for Missing Required Distributions
Failure to take a required minimum distribution from an inherited IRA triggers a penalty of 25% of the amount that should have been withdrawn (reduced to 10% if corrected within two years under SECURE 2.0). The IRS issued transitional relief for 2021–2024 waiving penalties for non-EDB beneficiaries who missed annual RMDs during those years, but this relief has ended. If you inherited an IRA from someone who had begun RMDs, confirm with a tax advisor whether you must take annual distributions in addition to emptying the account by year 10.