Inherited IRA: 5 Rules You Should Know

An inherited IRA is an individual retirement account that you receive after the original owner passes away. This article explains what happens to the account, your options for withdrawing the money, and the tax rules that apply. You’ll learn the five key rules that determine how and when you must take distributions, and how to avoid costly penalties.

What Is an Inherited IRA?

An inherited IRA (also called a beneficiary IRA) is a retirement account that you receive when the original owner dies. You can inherit any type of IRA—traditional, Roth, SEP, or SIMPLE—and the rules differ depending on the type and your relationship to the deceased. The key point: the money is not yours in the same way as your own IRA. You must follow specific distribution rules, and you cannot treat it as your own retirement account unless you are the spouse of the deceased.

Rule 1: The 10-Year Rule for Most Non-Spouse Beneficiaries

The most important rule, introduced by the SECURE Act of 2019, applies to most non-spouse beneficiaries who inherit an IRA after January 1, 2020. You must withdraw the entire balance by December 31 of the year that is 10 years after the original owner’s death. There are no required annual distributions during those 10 years—you can take money out at any pace, but the account must be empty by the end of the 10th year. For example, if the owner died in 2024, you have until December 31, 2034 to empty the account. If you fail to do so, you face a 50% excise tax on the amount that remains (though the IRS may waive it in certain circumstances).

Rule 2: Required Minimum Distributions (RMDs) for Spouses and Certain Beneficiaries

Spouses have more flexibility. You can treat the inherited IRA as your own by rolling it into your own IRA, or you can keep it as an inherited IRA and take RMDs based on your own life expectancy. If you are a minor child, disabled, or chronically ill, you may also take distributions over your life expectancy. For most other beneficiaries, the 10-year rule applies, but if the original owner was already taking RMDs, you may be required to take annual distributions in addition to the 10-year deadline. The IRS issued final regulations in 2024 that clarify this: for defined contribution plans (like 401(k)s) and IRAs, if the original owner had reached their required beginning date (RBD), the beneficiary must take annual RMDs in years 1-9, and then empty the account by year 10. If the owner had not reached RBD, only the 10-year rule applies.

Rule 3: Tax Treatment Depends on the IRA Type

Inherited traditional IRAs are taxable as ordinary income when you take distributions. That means every dollar you withdraw is added to your taxable income for that year. Inherited Roth IRAs are generally tax-free if the original owner had the account for at least 5 years. If not, earnings may be taxable, but contributions are always tax-free. You can take distributions from an inherited Roth without penalty, regardless of your age. Important: you cannot make new contributions to an inherited IRA, and you cannot roll it over into your own IRA (unless you are the spouse).

Rule 4: The 5-Year Rule for Spouses Who Inherit a Roth IRA

If you inherit a Roth IRA as a spouse, you have a special option: you can treat it as your own, which means you don’t have to take RMDs at all (since Roth IRAs have no RMDs for the owner). Alternatively, you can keep it as an inherited Roth and take distributions over your life expectancy. If you choose the 5-year rule, you must withdraw all contributions and earnings by December 31 of the fifth year after the owner’s death. However, this rule is rarely used because the other options are more favorable. For non-spouse beneficiaries of a Roth IRA, the 10-year rule applies, and distributions are tax-free if the 5-year holding period is met.

Rule 5: Penalties for Missing Deadlines

Failing to take a required distribution by the deadline triggers a 25% excise tax (reduced from 50% if corrected promptly). The IRS may waive the penalty if you can show reasonable cause. To avoid this, set reminders and consider taking distributions automatically. You can also name a beneficiary for your own IRA to ensure a smooth transfer, but that doesn’t affect the rules for the inherited account. If you inherit an IRA, it’s wise to consult a tax professional to understand your specific deadlines and options.

How to Choose the Right Distribution Strategy

Your strategy depends on your tax situation and financial needs. Here are some factors to consider:

• Your current tax bracket: If you’re in a low tax year, taking a larger distribution might be wise. If you’re in a high bracket, you might spread distributions over several years.
• Your age and life expectancy: Spouses can stretch distributions over their own life expectancy, which reduces the annual amount.
• The type of IRA: Roth IRAs are tax-free, so you might want to leave them until the end of the 10-year period to let the money grow tax-free.
• Your other income: Large distributions can push you into a higher tax bracket or trigger Medicare surcharges.
• State taxes: Some states tax IRA distributions, so consider your state’s rules.

Common Mistakes and How to Avoid Them

One common mistake is missing the 10-year deadline. Another is taking a distribution from an inherited traditional IRA and rolling it over into your own IRA—this is not allowed for non-spouses and results in a taxable distribution. Also, be aware that if you inherit an IRA from someone who was already taking RMDs, you must take annual RMDs in addition to the 10-year rule. Finally, don’t forget to update the account title to reflect that it’s an inherited IRA, such as “John Doe (deceased) IRA, FBO Jane Doe.� This ensures the custodian applies the correct rules.

Frequently Asked Questions

Can I roll over an inherited IRA into my own IRA?

Only a spouse can roll over an inherited IRA into their own IRA. Non-spouse beneficiaries cannot roll it over; they must keep it as an inherited IRA and take distributions according to the rules. Attempting to roll it over will result in a taxable distribution.

What happens if I miss the 10-year deadline?

If you fail to withdraw the full balance by December 31 of the 10th year after the owner’s death, you face a 25% excise tax on the remaining amount. The IRS may waive this penalty if you can show reasonable cause, but you must file Form 5329 and request a waiver.

Do I have to take RMDs from an inherited Roth IRA?

No, not if you are the spouse and treat it as your own. Non-spouse beneficiaries are subject to the 10-year rule, but there are no annual RMDs during that period. All distributions are tax-free if the 5-year holding period is met.

Can I disclaim an inherited IRA?

Yes, you can disclaim (refuse) an inherited IRA, which means the assets pass to the next beneficiary in line. This might be useful if you are in a high tax bracket and want to avoid the tax burden. The disclaimer must be made in writing within 9 months of the owner’s death, and you must not have accepted any benefits from the account.

How is the 10-year rule calculated?

Count 10 years from the year of the original owner’s death. For example, if the owner died in 2024, the deadline is December 31, 2034. You can take distributions at any time during those 10 years, but the account must be empty by that date.

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in age | Your Age | years | 45 | 0 | 120
in born | Original Owner's Year of Birth | - | 1960 | 1900 | 2025
in death | Original Owner's Death Year | - | 2024 | 1900 | 2025
in bal | Account Balance | $ | 100000 | 0 | 10000000
out rmd | Required Minimum Distribution (Year 1) | $ | bal / (73 - (2025 - death)) | 2
out yrs | Distribution Period (Years) | years | 73 - (2025 - death) | 0