Millions of Americans who inherited retirement accounts after 2019 now face a compressed deadline to withdraw every dollar, and the federal government is about to start enforcing annual distribution requirements that were repeatedly delayed. The SECURE Act replaced the old “stretch IRA” strategy with a 10-year rule for most nonspouse beneficiaries, and final Treasury and IRS regulations make key provisions applicable starting in taxable years beginning on or after January 1, 2025. The grace period is over, and heirs who have been sitting on inherited accounts without taking yearly withdrawals could soon owe both taxes and penalties.
The 10-Year Clock and Why It Tightens in 2025
Before the SECURE Act, a nonspouse heir could spread distributions from an inherited IRA across his or her own life expectancy, sometimes stretching withdrawals over decades. That approach kept annual taxable income relatively low and allowed the remaining balance to grow tax-deferred. Congress ended that option by adding new language to Section 401(a)(9) of the Internal Revenue Code, creating a hard requirement to empty the entire inherited account by the end of the 10th year following the original owner’s death.
The change did not simply set a final deadline. For heirs who inherited from someone who had already begun taking required minimum distributions (RMDs), the IRS also expects annual withdrawals during years one through nine, with the full remaining balance due in year 10. That dual obligation caught many beneficiaries off guard, and confusion over whether yearly draws were actually required led to widespread noncompliance in the first few years after the law took effect.
Treasury and the IRS responded by issuing a series of penalty-relief notices. Notice 2023-54 extended that relief for beneficiaries who missed annual distributions in 2023, following similar waivers for 2021 and 2022. A Government Accountability Office review of the final rulemaking confirmed that certain provisions do not apply until taxable years beginning on or after January 1, 2025, which means the training-wheels period is ending and heirs must begin complying with the full annual distribution schedule this year.
How the SECURE Act Reshaped Inherited IRA Distributions
The Congressional Research Service explains that the law effectively replaced the long-standing stretch strategy with a 10-year distribution requirement for many nonspouse beneficiaries. A narrow set of “eligible designated beneficiaries,” defined under Section 401(a)(9)(E), can still use the old life-expectancy method. That group includes surviving spouses, minor children of the account owner, disabled or chronically ill individuals, and beneficiaries who are not more than 10 years younger than the deceased.
Everyone else falls under the compressed timeline. The practical effect is a significant acceleration of taxable income. An heir who previously could have drawn down a $500,000 inherited IRA over 30 or 40 years must now liquidate it within a decade. Because traditional IRA distributions count as ordinary income, concentrating withdrawals into fewer years can push beneficiaries into higher federal tax brackets and potentially trigger other tax consequences tied to adjusted gross income.
The IRS describes on its beneficiary guidance page that designated beneficiaries generally must follow either life-expectancy payouts or the 10-year rule, depending on their status and the original owner’s age and RMD status at death. For many post-2019 deaths, the default is now the 10-year framework, with the added layer of annual RMDs when the decedent had already started withdrawals.
What Changes for Heirs in 2025
Up to now, the main enforcement stick-the 25% excise tax on missed required distributions-has been blunted by temporary relief. With that relief scheduled to end, 2025 becomes the first year when beneficiaries who inherited after 2019 and skipped annual withdrawals may have to true up their missed RMDs and potentially pay penalties.
Practically, heirs in this situation should first determine which category they fall into: eligible designated beneficiary, regular designated beneficiary under the 10-year rule, or a non-designated beneficiary such as an estate or charity. The IRS lays out these categories and timing rules in its retirement plan updates, which emphasize that the final regulations are intended to provide clarity going forward rather than retroactively punish good-faith mistakes during the transition years.
Beneficiaries who inherited from someone who died in 2020, 2021, or 2022 may already be several years into their 10-year window. For them, 2025 is not the year the clock starts; it is the year the IRS expects the annual pattern to be followed consistently. That means calculating the appropriate RMD under the single life table when required and coordinating that amount with any additional withdrawals needed to stay on track to empty the account by the end of year 10.
Planning Steps for Affected Beneficiaries
Heirs who have not yet taken distributions should begin by gathering key information: the original owner’s date of death, whether the owner was already taking RMDs, their own relationship to the decedent, and the account balance at the end of each year since inheritance. With that data, a tax professional can reconstruct what RMDs should have been and help decide whether to rely on penalty relief where still available or to request a waiver for reasonable cause.
Looking ahead, beneficiaries may want to spread withdrawals over the remaining years of the 10-year period instead of waiting until the end, in order to smooth taxable income and reduce the risk of bracket creep. Coordinating inherited IRA distributions with other income-such as wages, Social Security, or business earnings-can mitigate the overall tax hit. As 2025 approaches, the window for inaction is closing, and proactive planning can make the difference between a manageable tax bill and an avoidable penalty.
Free tool for readers: Most people don’t find out they’re off track until it’s too late. You can see where your retirement stands with a free Retirement Safety Score in about five minutes — no sign-up required to see it.
