Inheriting a retirement account is one of the few money situations where doing nothing is expensive. Not metaphorically expensive. There is an actual excise tax waiting for people who leave an inherited IRA alone for too long, and 2026 is the first year the full set of rules applies with no grace period behind it.
The confusion is understandable, because the law changed, then the interpretation of the law was disputed for four years, then the IRS finalized regulations that many beneficiaries never heard about. Here is what the rules say now and how they play out depending on who died, when, and what your relationship to them was.
What the SECURE Act Actually Changed
Before 2020, a non spouse who inherited an IRA could stretch withdrawals across their own life expectancy. A thirty year old inheriting from a grandparent could take small distributions for fifty years, and the account kept growing tax deferred the entire time. That was the stretch IRA, and it was a genuinely powerful transfer of wealth.
The SECURE Act ended it for most people. For account owners who died after December 31, 2019, most non spouse beneficiaries now fall under a ten year rule: the entire account has to be emptied by December 31 of the tenth year after the year of death. Someone who inherited in 2021 has until the end of 2031.
What nobody agreed on for years was whether beneficiaries also had to take something every year along the way, or whether they could let the balance sit and pull it all out in year ten. The IRS said annual distributions were required. Practitioners argued the statute said otherwise. The IRS ultimately waived the penalty for missed distributions in 2021 through 2024 while it sorted this out, most recently through Notice 2024-35.
Final regulations issued in 2024 settled it, and they took effect starting in 2025. The waivers are gone.
There Are Two Versions of the Ten Year Rule
Which one applies to you depends entirely on whether the original owner had already started taking required minimum distributions before they died. The IRS calls that moment the required beginning date, and under current law it is April 1 of the year after the owner turns 73.
If the owner died before their required beginning date, the ten year rule is simple. No annual distribution is required in years one through nine. You can take nothing at all for nine years and then withdraw the full balance in year ten, if that is what makes sense for your tax situation.
If the owner died on or after their required beginning date, you have to do both things. You take an annual required minimum distribution in years one through nine, calculated using your own single life expectancy from the IRS tables, and you still have to clear the entire remaining balance by the end of year ten. The annual distributions do not extend the deadline. They just make sure the account does not sit untouched.
Inherited Roth IRAs are a useful exception to remember. Roth owners never have a required beginning date during their lifetime, so a Roth you inherit falls under the first version: ten years to empty it, with no annual distribution required in between. Qualified withdrawals are still tax free, which means the sensible move for most people is to let it grow for the full ten years and take it at the end. The IRS covers the mechanics for both account types in Publication 590-B, and its RMD FAQ page is a reasonable starting point if you want the plain agency language rather than an interpretation of it.
Who Escapes the Ten Year Rule Entirely
The law carves out a category called eligible designated beneficiaries, and if you are one of them, you can still stretch distributions across your own life expectancy the old way.
Surviving spouses qualify, and they have additional options besides. Minor children of the account owner qualify, but only until they reach the age of majority, at which point the ten year clock starts and they have until age twenty eight in most cases to finish. Note that this covers the owner’s own children, not grandchildren or nieces and nephews. People who are disabled or chronically ill under the tax code definitions qualify. So does anyone who is not more than ten years younger than the deceased, which is the provision that covers siblings and unmarried partners close in age.
Everyone else, which in practice means most adult children inheriting from a parent, is on the ten year clock.
Spouses Have a Separate Menu
If your spouse died and left you an IRA, you have choices nobody else gets, and the right one depends on your age.
You can roll the account into your own IRA, which treats the money as if it had always been yours. Distributions then follow your own timeline, and you will not owe required minimum distributions until you hit 73. The catch is that money in your own IRA is subject to the early withdrawal penalty before age 59 and a half.
Or you can keep it titled as an inherited IRA, which preserves penalty free access at any age. That matters a lot for a widow or widower in their forties who may need the money. It costs you the ability to defer as long.
There is no universal right answer here, and it is one of the few situations where an hour with a fee only advisor or a CPA tends to pay for itself.
The Penalty for Getting It Wrong
Missing a required distribution triggers an excise tax on the amount you should have taken and did not. SECURE 2.0 reduced that penalty from the old 50 percent to 25 percent, and it drops to 10 percent if you correct the shortfall within a two year correction window. The IRS also retains the ability to waive it entirely for reasonable cause, which people request by filing Form 5329 with an explanation attached.
That is a real penalty, but it is not the expensive part for most people. The expensive part is a tax bracket problem. Traditional IRA distributions count as ordinary income. If you inherit a $400,000 traditional IRA and ignore it for nine years while it grows, you may be looking at a distribution of well over half a million dollars landing in a single tax year, potentially during your peak earning years. That can push you into a higher bracket, trigger a Medicare premium surcharge if you are over 63, and cost far more than spreading it out would have.
The planning move that usually works is unglamorous: figure out roughly how much you can withdraw each year without crossing into the next bracket, and take that amount annually even in years when nothing is required. Ten smaller tax bills usually beat one enormous one.
Where the Money Waits in the Meantime
One practical note that gets overlooked. Money you withdraw from an inherited IRA is yours, and the tax on it is due for the year you take it. If you are pulling out distributions you do not immediately need, the cash still has to live somewhere, and leaving it in a checking account earning nothing for eight months while you decide is a small, avoidable loss. A high yield savings account or a short term certificate covers the gap, and setting aside the estimated tax portion separately keeps April from being a surprise.
Inheriting an account is rarely something people want to think about carefully in the year it happens. The rules are unforgiving about that, unfortunately. If you inherited an IRA in 2021 or 2022 and have not touched it, the ten year deadline is closer than it feels, and the annual distribution requirement may already apply to you.