Did you inherit an IRA? Confirm the Rules Before Year-End
Inherited IRA mistakes often begin with one assumption:
“I have 10 years, so I can deal with this later.”
That may be wrong. Many non-spouse beneficiaries must fully distribute an inherited IRA within 10 years. Depending on when the original owner died and the beneficiary’s classification, annual required minimum distributions may also apply during that period.
The first step is not calculating a withdrawal. It is confirming which rules apply.
The 10-Year Rule Is Only the Starting Point
For many adult children, grandchildren, siblings and other non-spouse beneficiaries, an IRA inherited after 2019 must be emptied by December 31 of the 10th year following the original owner’s death.
If the owner died in 2021, for example, the account generally must be fully distributed by December 31, 2031.
That does not necessarily mean the beneficiary can leave the account untouched for nine years and withdraw everything in year 10.
Annual RMDs May Apply
The key question is whether the original owner died before or after their required beginning date for RMDs.
If the owner died before the required beginning date, a beneficiary subject to the 10-year rule generally does not have to take annual distributions during years one through nine. The account must still be emptied by the end of year 10.
If the owner died on or after the required beginning date, annual RMDs generally must continue during the 10-year period. The remaining balance must still be distributed by the end of year 10.
The IRS final regulations apply this annual distribution requirement beginning with the 2025 calendar year.
This is the part many beneficiaries miss.
Beneficiary Category Changes the Answer
Not every beneficiary follows the same rules.
Certain people may qualify as eligible designated beneficiaries, including:
A surviving spouse
The original owner’s minor child
A disabled or chronically ill beneficiary
Someone not more than 10 years younger than the original owner
These beneficiaries may qualify for different distribution periods or life-expectancy treatment. Trusts, estates and charitable beneficiaries can also face different rules.
Do not assume that being named on the account tells you which tax rule applies.
Spouses Have More Options
A surviving spouse may be able to keep the account as an inherited IRA, roll it into their own IRA or, in some situations, treat the account as their own.
The right choice can affect RMD timing, future taxes and access to the funds.
A rollover should not be automatic. The options should be reviewed before the account is moved because the best structure depends on the spouse’s age, income needs and tax position.
Inherited Roth IRAs Are Different
A non-spouse beneficiary of a Roth IRA is generally still subject to the 10-year deadline.
However, Roth IRA owners are treated as having died before their required beginning date. As a result, annual RMDs generally are not required during years one through nine when the 10-year rule applies.
The account still must be emptied by the end of year 10.
Missed RMDs Can Be Expensive
The excise tax for a missed RMD is generally 25% of the amount that should have been distributed.
The rate may be reduced to 10% when the shortfall is corrected within the applicable correction period. A waiver may also be available when the failure resulted from reasonable error and appropriate corrective steps are taken.
The important point is to act quickly. A missed distribution should not be ignored or quietly added to next year’s withdrawal.
The Distribution Schedule Is Also a Tax Decision
Traditional inherited IRA distributions are generally taxable income.
Waiting until year 10 can create a large one-year distribution, push the beneficiary into a higher tax bracket and eliminate opportunities to spread income across lower-income years.
The better question is not simply, “How much am I required to withdraw?”
It is:
“How should the withdrawals be timed within the rules?”
A planned distribution schedule may provide more control over taxable income than waiting until the final deadline.
What to Confirm Before Year-End
Every inherited IRA beneficiary should confirm:
Whether the account is traditional or Roth
Whether the beneficiary is a spouse, eligible designated beneficiary or another type of beneficiary
Whether the original owner died before or after the required beginning date
Whether an annual RMD is due this year
The account’s final year-10 deadline
Whether any prior required distributions were missed
How planned withdrawals will affect taxable income
The custodian may provide account information or calculate certain distributions, but the beneficiary remains responsible for meeting the applicable tax requirements.
Plan Before the Deadline Controls the Decision
Inherited IRAs are not accounts to place on autopilot.
The beneficiary category, original owner’s age, account type and date of death can all change the required distribution schedule. Once the deadline passes, the available planning options become much narrower.
Realm Business & Tax Advisory helps beneficiaries review inherited IRA requirements, identify missed distributions and build a tax-aware withdrawal strategy.
Inherited an IRA? Contact Realm Tax to review the rules and distribution plan before year-end.
This article provides general information and is not a substitute for tax, legal or investment advice. Inherited retirement account rules depend on the beneficiary designation, account documents and individual circumstances.