What Are Inherited IRA Rules?
Inherited IRA rules changed dramatically with the SECURE Act of 2019. The "stretch IRA" strategy — which allowed most beneficiaries to take distributions over their lifetime — was eliminated for most non-spouse beneficiaries. Today, most adult children who inherit an IRA must withdraw the entire account within 10 years, which can create a significant and unexpected tax burden.
Rules by Beneficiary Type
The rules that apply to an inherited IRA depend entirely on your relationship to the deceased and when they died. Here is a breakdown of the four main categories:
Surviving Spouse
Most flexible optionCan roll into own IRA (delay RMDs to age 73), treat as inherited IRA (take RMDs based on own life expectancy), or use the 10-year rule. Rolling into own IRA is usually optimal.
Eligible Designated Beneficiary (EDB)
Stretch IRA — life expectancy withdrawalsMinor children of the owner, disabled or chronically ill individuals, and beneficiaries within 10 years of the owner's age. Can take RMDs over their own life expectancy. Minor children switch to 10-year rule when they reach the age of majority.
Non-Spouse, Non-EDB Beneficiary
10-Year RuleMust withdraw the entire account within 10 years of the owner's death. No required annual distributions during the 10 years — but the full balance must be gone by end of year 10. Applies to most adult children, siblings, and non-related beneficiaries.
Estate or Non-Qualifying Trust
5-Year Rule (if owner died before RMD age) or Ghost Life ExpectancyIf the original owner died before their required beginning date, the estate must distribute the full account within 5 years. If the owner had already started RMDs, distributions continue based on the owner's remaining life expectancy.
The 10-Year Rule: What It Means in Practice
Under the 10-year rule, you are not required to take any distributions in years 1–9. You could theoretically take nothing for 9 years and then withdraw the entire account in year 10. However, this is rarely optimal from a tax standpoint.
If you inherit a $500,000 traditional IRA and withdraw it all in year 10, that $500,000 is added to your taxable income in a single year — potentially pushing you into the 32% or 37% federal bracket. Spreading distributions evenly over 10 years — $50,000 per year — keeps you in a lower bracket and reduces total taxes paid.
IRS Clarification (2024): Annual RMDs May Be Required
If the original owner had already started taking RMDs (i.e., they died after their required beginning date), non-EDB beneficiaries must take annual RMDs in years 1–9 AND empty the account by year 10. The IRS waived penalties for missed annual RMDs in 2021–2024 while finalizing regulations, but compliance is now required.
Inherited Roth IRA Rules
Tax-Free Withdrawals
Withdrawals from an inherited Roth IRA are generally tax-free if the original account was held for at least 5 years. This makes the timing of distributions less urgent from a tax standpoint.
Still Subject to 10-Year Rule
Non-spouse beneficiaries must still empty an inherited Roth IRA within 10 years — but since withdrawals are tax-free, the strategy is usually to let it grow as long as possible and take a large tax-free distribution in year 10.
Inherited IRAs and Southeast Texas Families
Many Southeast Texas families — particularly those with parents who worked in refining, petrochemicals, or healthcare — are inheriting significant IRA balances. The SECURE Act changes mean that adult children who inherit a $400,000 or $600,000 traditional IRA now face a mandatory 10-year distribution window that can significantly increase their tax burden during their peak earning years.
Planning ahead — both as the IRA owner and as the beneficiary — can reduce this burden. Roth conversions by the original owner reduce the inherited balance. Coordinating distributions with the beneficiary's income in lower-earning years can minimize the tax hit. Richard Placette II works with Southeast Texas families on both sides of this equation.
Frequently Asked Questions
What is an inherited IRA?
An inherited IRA is an IRA you receive when the original account owner dies. You cannot contribute to it, and the rules for withdrawals depend on your relationship to the deceased and when they died.
What is the 10-year rule for inherited IRAs?
Most non-spouse beneficiaries who inherit an IRA from someone who died after December 31, 2019 must withdraw the entire account within 10 years. If the original owner had already started RMDs, annual distributions may also be required in years 1–9.
Who is exempt from the 10-year rule?
Eligible Designated Beneficiaries (EDBs) — surviving spouses, minor children of the owner, disabled or chronically ill individuals, and beneficiaries within 10 years of the owner's age — can still use the stretch IRA strategy based on their own life expectancy.
Can a surviving spouse roll an inherited IRA into their own IRA?
Yes. A surviving spouse can roll the inherited IRA into their own IRA, delaying RMDs until their own age 73 and naming new beneficiaries. This is generally the most advantageous option for surviving spouses.
Are inherited Roth IRA withdrawals taxable?
Generally no — withdrawals from an inherited Roth IRA are tax-free if the original account was held for at least 5 years. Non-spouse beneficiaries must still empty the account within 10 years, but since withdrawals are tax-free, the strategy is usually to let it grow and take a large distribution in year 10.
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Inherited an IRA in Southeast Texas?
Richard Placette II helps beneficiaries navigate inherited IRA rules, minimize taxes under the 10-year rule, and coordinate distributions with their overall financial plan. Free consultation.
About the Author: Richard Placette II is a licensed financial advisor with MRB Capital Group in Lumberton, Texas. Verifiable on FINRA BrokerCheck and SEC IAPD. This content is for informational purposes only and does not constitute investment or tax advice.