Inheriting a parent’s or relative’s individual retirement account used to come with decades to spread out the tax bill. Today, most non-spouse heirs face a hard deadline: the entire account must be emptied within 10 years of the original owner’s death, with no lifetime stretch the way earlier beneficiaries once had. The compressed timeline means a decade of forced withdrawals from a traditional IRA can land on top of a beneficiary’s own paycheck, pushing taxable income into a higher bracket in the very years the distributions run largest. Missing the fine print inside that 10-year window can be its own costly mistake.
How the 10-Year Rule Works
Under rules that apply to deaths in 2020 and later, most people who inherit an IRA from someone who was not their spouse must withdraw the entire balance by the end of the tenth year following the year of death, according to IRS guidance on retirement topics for beneficiaries. The account cannot still hold money once that tenth year closes, and the deadline applies no matter how large the inherited balance is or how the heir chooses to invest it in the meantime.
A narrower group of heirs, called eligible designated beneficiaries, gets more flexibility. A surviving spouse, a minor child of the original owner, a disabled or chronically ill individual, or an heir who is not more than 10 years younger than the account owner can generally stretch withdrawals over their own life expectancy instead of the compressed 10-year window. A minor child’s exception only lasts until they reach the age of majority, at which point the 10-year clock starts running on whatever balance remains in the account.
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The Annual Withdrawal Requirement Many Heirs Miss
What trips up many heirs is a detail the IRS only settled with final regulations: if the original account owner had already reached the age for required withdrawals before dying, most beneficiaries subject to the 10-year rule must also take an annual withdrawal in years one through nine, not simply wait and empty the account in year 10. The IRS delayed enforcement of that annual requirement and waived penalties for missed 2021, 2022, 2023 and 2024 withdrawals while the rule was being finalized, but the annual requirement has applied on a going-forward basis since 2025, according to reporting on the finalized IRS regulations.
Beneficiaries who assumed they could simply let the account grow tax-deferred for nine years and take one large distribution at the end have had to recalculate, in some cases owing back withdrawals and facing an excise tax on the amounts they should have taken in earlier years. The confusion was widespread enough that the IRS acknowledged it directly in Notice 2022-53, which shielded beneficiaries from penalties for the specific years the rule remained unsettled.
Why the Rule Can Push Heirs Into a Higher Tax Bracket
Every dollar withdrawn from an inherited traditional IRA counts as ordinary taxable income to the beneficiary in the year it comes out, stacking on top of wages, Social Security or any other income already on that year’s return. A beneficiary in their peak earning years who inherits a large traditional IRA can find that a single required withdrawal pushes them into a higher marginal tax bracket, increases the taxable share of their own Social Security benefit, or triggers higher Medicare premium surcharges tied to income from two years earlier.
An inherited Roth IRA works differently, since qualified withdrawals of both contributions and earnings are generally tax-free to the beneficiary, according to IRS guidance on IRA distributions. The 10-year emptying deadline still applies to an inherited Roth account, but because the withdrawals themselves usually are not taxed, the timing of when the money comes out matters far less than it does with a traditional IRA, where every withdrawal adds to a beneficiary’s taxable income.
The 10-year deadline applies to inherited employer-sponsored retirement accounts as well, including 401(k)s, but the practical mechanics can differ from an IRA. Some employer plans give a non-spouse beneficiary only a short window to either take a lump-sum distribution or roll the balance into an inherited IRA, rather than allowing the money to remain inside the original employer’s plan for the full 10 years. A beneficiary who does not act within that shorter, plan-imposed window can end up facing a lump-sum taxable distribution far sooner than the 10-year IRA deadline would otherwise require.
That difference makes the withdrawal strategy for a traditional inherited IRA a genuine tax-planning decision rather than a formality. Spreading withdrawals evenly across the 10-year window, rather than waiting until income is highest or lowest in a single year, can help a beneficiary avoid pushing an unusually large distribution into a year when it triggers the steepest possible tax consequences. A beneficiary who is still working, and expects to retire and drop into a lower bracket within the 10-year window, may deliberately withdraw less in early years and more after their own income falls.
The rule’s complexity is compounded by the fact that the underlying calculation, whether annual withdrawals are required at all in a given year, depends on a fact the beneficiary may not immediately know: whether the original account owner had already started their own required withdrawals before death. Beneficiaries who inherit an IRA without confirming that detail risk missing a required annual withdrawal without realizing they owed one in the first place.
The 10-year rule has effectively converted what used to be a lifetime planning decision into a tightly bounded one, where the timing of withdrawals inside a single decade can meaningfully change how much of an inheritance a beneficiary keeps after taxes. For heirs used to thinking of an inherited IRA as a long-term account to be managed for decades, the shift to a hard 10-year close-out remains one of the least understood consequences of the current rules.
This article was drafted with AI assistance and edited for accuracy.
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