Inherited IRA rules: the 10-year rule and who gets more time

If you inherit an IRA, how fast you have to empty it depends on who you are in relation to the person who died. A spouse has the most choices. Most other people have ten years. Here is how the rules in IRS Publication 590-B sort it out.

The two kinds of beneficiary

The IRS separates people who inherit into eligible designated beneficiaries and everyone else. You are an eligible designated beneficiary if you are:

• The owner's surviving spouse.
• The owner's minor child.
• A disabled individual.
• A chronically ill individual.
• Any other person who is not more than 10 years younger than the IRA owner.

These rules apply when the owner died in a tax year beginning after December 31, 2019. Older inheritances follow earlier rules.

Everyone else: the 10-year rule

If you are a designated beneficiary who is not on that list, the account has to be emptied within 10 years. Exactly, the entire balance must be withdrawn by December 31 of the year that contains the 10th anniversary of the owner's death.

The IRS gives a plain example. If the owner died in 2025, the beneficiary has to fully distribute the IRA by December 31, 2035.

Do you have to take money out every year?

It depends on when the owner died. If the owner died before their required beginning date, which is when their own required minimum distributions had to start, then no distribution is required for any year before the 10th year. You could leave it all in until the final year, although taking it all at once can mean a large tax bill in that year.

If the owner died on or after that date, the beneficiaries are responsible for the owner's required distribution for the year of death, if the owner had not already taken it.

Eligible designated beneficiaries: life expectancy payments

If you are an eligible designated beneficiary, you can generally take distributions over your life expectancy instead, which spreads them out. The publication says most IRA agreements require this unless you elect the 10-year rule. If the owner died before their required beginning date, an eligible designated beneficiary can choose the 10-year rule.

The 10-year rule still catches up eventually in two cases. When an eligible designated beneficiary who was taking life expectancy payments dies, the remaining balance falls under a 10-year period from that death. And a minor child moves to a 10-year period when they reach the age of majority.

Surviving spouses have the most choices

A spouse who inherits can choose to treat the IRA as their own. In that case, the spouse uses the same tables as any owner, including the Uniform Lifetime Table. A spouse who keeps it as an inherited IRA follows the beneficiary rules instead.

The IRS adds one rule that can surprise people. If a surviving spouse is the sole designated beneficiary and misses a required distribution by December 31, the spouse is treated as the owner of the IRA.

Estates and trusts

A beneficiary that is not a person, such as an estate, falls under the older 5-year rule when the owner died before their required beginning date: the whole balance by December 31 of the year containing the fifth anniversary of the death. Trusts have their own rules in the publication.

Inherited Roth IRAs

The original owner of a Roth IRA never has to take distributions. A beneficiary who inherits one may have to.

If a distribution is missed

A beneficiary who does not take a required distribution for the year may owe an excise tax on the amount that was not taken. That makes the deadlines worth writing down.

Your own RMDs

If the IRA is your own, the RMD calculator works out the required amount, including the smaller figure that applies when your spouse is your sole beneficiary and more than 10 years younger.