The rules for inheriting a tax-deferred retirement account tightened sharply after the SECURE Act of 2019, and 2025 was the year the strictest version fully took hold. Most people who inherit a traditional IRA from someone other than a spouse now have to empty the entire account within 10 years, and a large share of them must also take a withdrawal every single year along the way. Pulling out too little triggers a federal excise tax on the amount left behind. The design quietly rewards heirs who map out the drawdown and penalizes anyone who assumes the balance can sit untouched until the final year.
Which heirs the 10-year rule captures
For any account owner who died after December 31, 2019, the Internal Revenue Service requires that the full inherited balance be distributed within 10 years. The requirement applies to the broad category of non-spouse heirs — adult children, grandchildren, nieces, nephews, friends and most other individual beneficiaries. It replaced the old “stretch IRA,” which let heirs spread withdrawals across their own life expectancy and shelter the money for decades.
A narrower group, which the agency calls eligible designated beneficiaries, escapes the 10-year clock. That group covers a surviving spouse, a minor child of the account owner, a person who is disabled or chronically ill, and any beneficiary who is not more than 10 years younger than the deceased. Those heirs may still take distributions over their life expectancy. For everyone outside that list, the 10-year deadline is the governing rule, and the account must be fully drained by December 31 of the year containing the 10th anniversary of the owner’s death.
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The annual withdrawal that catches heirs off guard
The complication that surprised many beneficiaries is that the 10-year deadline is not always the only requirement. Under regulations the IRS finalized in 2024 and applied beginning with the 2025 distribution year, an heir must also take a required minimum distribution in each of years one through nine when the original owner had already reached the age at which lifetime withdrawals begin. That triggering point, the required beginning date, currently arrives at age 73.
The logic is that the account was already in payout mode when the owner died, so the IRS does not let the payments pause. In that situation the beneficiary calculates an annual amount using a single life expectancy factor and still has to zero out the balance by the end of year 10. When the owner died before reaching the required beginning date, no annual withdrawal is mandated; the heir simply has to empty the account within the decade and can choose the timing. Because the annual-RMD rules were genuinely unsettled for several years, the agency waived the yearly requirement for 2021 through 2024, which is part of why 2025 marked the first year missed annual distributions carried a penalty.
What a missed distribution actually costs
The enforcement tool is an excise tax on the shortfall. If a beneficiary fails to withdraw the full required amount by the deadline, the portion not taken can be hit with a 25% excise tax, according to the IRS required minimum distribution guidance. The rate drops to 10% when the missed distribution is corrected within a two-year window, a softening added by the SECURE 2.0 Act. An heir who realizes the error reports it on Form 5329 with the year’s federal tax return.
The penalty is not automatic and irreversible. The IRS can waive it when the account holder shows the shortfall stemmed from reasonable error and that steps are being taken to fix it, which requires filing Form 5329 with a letter of explanation. Still, the safer course for most heirs is to avoid the shortfall in the first place, because the excise tax lands on top of the ordinary income tax the withdrawal itself will owe.
Why the drawdown timing decides the tax bill
The deeper consequence of the 10-year rule is not the deadline itself but the way it compresses taxable income. Every dollar pulled from an inherited traditional IRA is taxed as ordinary income to the heir in the year it comes out. An heir who waits and empties a large account in a single year can push a big slug of income into a high bracket, potentially raising the tax rate on the withdrawal and spilling over into Medicare premium surcharges or other income-tested thresholds.
Spreading the distributions more evenly across the decade often produces a lower lifetime tax cost, particularly for a beneficiary whose own earnings vary year to year. Someone in peak earning years might lean on smaller early withdrawals and larger ones after retiring into a lower bracket, while an heir already retired might do the reverse. The single life expectancy tables and account math live in IRS Publication 590-B, but the strategic question is behavioral: the rule turns a windfall into a 10-year sequence of tax decisions rather than a one-time event.
None of this changes the core fact that the money must come out within a decade. What the layered structure does is remove the old option of doing nothing. A beneficiary who inherits a traditional IRA today faces two live questions at once — whether an annual withdrawal is already required, and how to sequence the rest so the final year does not arrive with both a deadline and an oversized tax bill still waiting.
This article was researched and drafted with the assistance of artificial intelligence.
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