Inherited IRA Rules: What to Do When You Inherit a Retirement Account

If someone recently left you an IRA or 401(k), the rules for what you do with it are not the same as they were a decade ago. The old "stretch IRA" strategy, where you could spread withdrawals over your own lifetime, is mostly gone. What replaced it is stricter, has real deadlines, and comes with a penalty if you get it wrong.

This isn't a topic most people think about until they're grieving and suddenly holding a stack of paperwork from a brokerage. That's exactly why it's worth understanding before you're in that position.

The Big Change: No More Stretch IRA for Most Beneficiaries

The SECURE Act of 2019, followed by SECURE 2.0 in 2022, brought changes to the rules for inherited IRAs, most notably by changing the stretch IRA strategy for most nonspouse beneficiaries. Before that law, a beneficiary could take small distributions over their entire life expectancy, letting the account keep growing tax-deferred for decades. That option is gone for most people who inherit now.

The 10-year rule, established in 2019 by the SECURE Act, requires most non-spouse beneficiaries to fully distribute inherited IRA assets by December 31 of the tenth year following the original owner's death. There's no requirement to withdraw a set amount each year in every case, but the account has to hit zero by that deadline.

Do You Have to Take Money Out Every Year, or Just by Year 10?

This is the part that trips people up, and the IRS only settled it with final regulations that took effect in 2025. The answer depends on whether the person who died had already started their own required minimum distributions (RMDs) before they passed away.

• If the original owner died before their required beginning date (generally the year they turned 73), most non-spouse beneficiaries don't have to take annual withdrawals. You can wait, take distributions unevenly, or empty it all in year 10 — as long as it's at zero by then.
• If the original owner died on or after their required beginning date, the rules are stricter. Beneficiary RMDs are required in years 1–9, and the rest of the account must be emptied by year 10.

If you inherited an account a few years ago and assumed the clock reset in 2025 when the final rules kicked in, it didn't. Inheriting in 2021 does not give you ten fresh years starting in 2025; the deadline is still the end of 2031.

Who Gets to Skip the 10-Year Rule

Not everyone is stuck with a 10-year deadline. The IRS carved out a category called "eligible designated beneficiaries" who can still stretch distributions over their own life expectancy. This includes the IRA owner's spouse, an individual not more than 10 years younger than the IRA owner, someone who is disabled, or someone who is chronically ill (as defined by the IRS). Minor children of the original owner also get special treatment, though the 10-year clock starts once they turn 21.

Spouses have it easiest. Spouse beneficiaries have the option to treat the IRA as their own. That means rolling it into their own IRA and following the normal RMD rules for their age, rather than any inherited-account timeline.

What Happens If You Miss a Required Withdrawal

This is the part that actually costs money. If the full amount isn't withdrawn on time, the IRS may assess a penalty of up to 25% of the missed distribution, which can potentially be reduced to 10% if the error is corrected quickly. That's a steep price for a paperwork mistake, and it's one reason to get this right the first year rather than guessing.

Mistakes That Are Hard to Undo

A few errors show up again and again with inherited IRAs, and some can't be fixed once made:

• Non-spouse beneficiaries trying to roll the inherited IRA into their own IRA — this isn't allowed and can trigger an unwanted taxable event.
• Leaving the account titled incorrectly instead of as an "Inherited IRA."
• Taking the entire balance out in year one, which can push you into a much higher tax bracket for that year.
• Assuming you're exempt from annual RMDs without actually checking whether the original owner had already started theirs.

Traditional vs. Roth: The Tax Bill Looks Different

With a traditional IRA, every dollar you pull out is added to your taxable income for that year. Spreading withdrawals across more years, rather than draining the account fast, can keep you out of a higher bracket. With an inherited Roth, you still have the same 10-year deadline, but qualified withdrawals aren't taxed, so timing matters less for tax purposes and more for how long you want the money growing tax-free.

What to Actually Do This Week

If you've recently inherited an IRA or 401(k), don't take a distribution yet. First, find out two things: whether you qualify as an eligible designated beneficiary, and whether the original owner had already started their RMDs. Those two answers tell you which set of rules applies to you. From there, a tax professional or the plan custodian can confirm the exact deadlines for your situation.

Handling this correctly is also just one piece of the bigger picture. If you're not sure how an inheritance like this fits into your overall finances, running your numbers through a tool like Grade My Finance can help you see where it moves the needle and what to prioritize next.