Inherited IRAs and the 10-year rule

For decades, inheriting an IRA came with a gift: the 'stretch,' which let heirs take tiny withdrawals over their own life expectancy while the account kept compounding tax-deferred for 30 or 40 years. The SECURE Act ended that for most heirs of anyone who died in 2020 or later. The replacement — the 10-year rule — is simple to state and expensive to handle badly: most non-spouse beneficiaries must empty the account by December 31 of the tenth year after the owner's death.

Who gets which set of rules

Eligible designated beneficiaries (the exceptions)

• Surviving spouses — the best options by far, including rolling the account into their own IRA and treating it as theirs.
• Minor children of the deceased (not grandchildren) — they stretch until age 21, then the 10-year clock starts.
• Disabled or chronically ill individuals — can still stretch over their life expectancy.
• Beneficiaries less than 10 years younger than the deceased — a sibling near your age, for example, can still stretch.

Everyone else: the 10-year rule

Adult children, grandchildren, friends, and most other individual heirs get 10 years. And there's a nasty wrinkle the IRS confirmed after years of confusion: if the original owner had already reached their required-distribution age, the heir must also take annual required minimum distributions in years 1–9 — not just empty it by year 10. Missing those RMDs risks a penalty of up to 25% of the amount that should have come out.

Why timing inside the 10 years is the whole game

Every dollar out of an inherited traditional IRA is ordinary income in the year you take it. Wait until year 10 and take it all at once, and you can catapult yourself several tax brackets up. Spread it evenly, or load withdrawals into your low-income years, and the same inheritance can cost dramatically less in tax.

Inherited Roth IRAs: different math, same deadline

Inherited Roths also fall under the 10-year rule for most heirs, but withdrawals are tax-free and there are no annual RMDs in years 1–9. That flips the strategy completely: leave a Roth alone until as late in year 10 as possible, letting it compound tax-free the whole time, then take it all at the deadline. Draining an inherited Roth early is leaving free growth on the table.

The mistakes that can't be undone

• Taking a lump-sum check made out to you personally when you meant to open an inherited IRA — for non-spouses there's no 60-day fix; the entire amount becomes taxable income immediately.
• Retitling errors: the account must remain an inherited ('beneficiary') IRA, typically titled like 'John Smith, deceased, IRA FBO Jane Smith.' Rolling it into your own IRA is only allowed for spouses.
• Missing years 1–9 RMDs when the original owner was already taking distributions.
• Forgetting state income tax in the pacing math — a heir planning to move from a high-tax state to a no-tax state may want to defer withdrawals until after the move.
• Naming your estate (or letting a default do it) as the IRA beneficiary — estates get an even worse 5-year payout in many cases. This one's for account owners: name humans.

A first-90-days checklist for heirs

1. Don't cash anything. Ask the custodian to set up a properly titled inherited IRA before any money moves.
2. Determine which rules apply: are you a spouse, an eligible designated beneficiary, or standard 10-year?
3. Check whether the deceased had reached RMD age and whether their final-year RMD was taken — that one is on the beneficiaries to complete.
4. Sketch your 10-year income picture and set a withdrawal pace — even a rough plan beats defaulting to year-10 panic.
5. If the account is large relative to your income, spend a few hundred dollars on a CPA session. It's the highest-ROI tax advice most people will ever buy.

Who gets which clock

A worked pacing example beyond the big one above, because the strategy scales down too: an heir earning $60,000 inherits a $150,000 traditional IRA. Taking $15,000 a year keeps every withdrawal inside the 22% bracket — roughly $3,300 of federal tax per year, about $33,000 over the decade. Waiting and taking $200,000 (after growth) in year 10 pushes a large slice into the 32% bracket and costs closer to $50,000. Even on a modest inheritance, pacing is worth a used car. And the reverse logic applies in a low-income year: a layoff, a return to school, or a sabbatical is exactly when to pull a double or triple withdrawal at bargain rates.

One warm, practical note for the newly bereaved: none of this needs solving in the first month. The only genuinely urgent items are not cashing anything, checking the deceased's final-year RMD, and getting the account titled as an inherited IRA. The pacing strategy can wait for a calmer season — the 10-year clock is long precisely so that grief and good tax planning never have to happen in the same week.

The bottom line

The 10-year rule turned inherited IRAs from a set-and-forget asset into a decade-long tax planning project. Get the account titled correctly, figure out whether annual RMDs apply to you, pace traditional-IRA withdrawals into your cheapest tax years, and let inherited Roths ride to the deadline. The rules are rigid; the timing is yours — and the timing is worth tens of thousands.