Inheriting an IRA sounds like a windfall, and it can be — but the rules that govern how fast you must empty the account changed dramatically under the SECURE Act, and a misstep can hand the IRS far more of the balance than necessary. If you inherited a traditional IRA from someone who died in 2020 or later, the old "stretch" strategy is gone for most beneficiaries, and a compressed 10-year clock is now in play.
This is general information, not individual tax advice — the right treatment depends on your specific situation.
The 10-Year Rule in Plain Terms
For most non-spouse beneficiaries who inherited an IRA after the original owner died in 2020 or later, the entire account must be emptied by December 31 of the tenth year following the year of death. There is no longer an option to spread withdrawals over your own life expectancy. The balance — and the tax on every traditional-IRA dollar — has to come out within that window.
The Annual-RMD Trap Inside the 10 Years
Many people assumed the 10-year rule meant they could wait until year ten and take everything at once. The IRS final regulations, which Treasury confirmed apply for distribution years beginning on or after January 1, 2025, say otherwise in a key situation. If the original owner had already begun taking required minimum distributions (RMDs) before death, the beneficiary must continue taking annual RMDs in years one through nine and still empty the account by the end of year ten. If the owner died before their required beginning date, no annual RMDs are required during the window — only the year-ten deadline applies.
Penalty Relief — and Why 2025 Matters
Because this requirement was genuinely confusing, the IRS granted relief: it waived the penalty for missed annual RMDs by affected beneficiaries for 2021, 2022, 2023, and 2024. That grace period is over. Beginning in 2025, those annual RMDs are enforced, and failing to take one can trigger the excise tax on the amount you should have withdrawn. If you inherited an account where the owner was already taking RMDs, 2025 is the year to get the schedule right.
Who Is Exempt: Eligible Designated Beneficiaries
Not everyone is locked into the 10-year rule. A category called "eligible designated beneficiaries" can still generally stretch distributions over life expectancy. This group includes the surviving spouse, a minor child of the original owner (until they reach the age of majority, after which the 10-year clock starts), a disabled individual, a chronically ill individual, and any beneficiary who is not more than 10 years younger than the original owner. Surviving spouses have additional, more flexible options, including treating the IRA as their own.
Spreading the Tax Across the Window
Here is where planning turns into real money. Every dollar leaving a traditional inherited IRA is ordinary income. Waiting until year ten and withdrawing the whole balance in a single tax year can push you into the highest brackets and inflate everything from Medicare premiums to the taxation of other income. For many beneficiaries, the smarter move is to take voluntary distributions spread across the 10 years — especially in lower-income years — so the balance is drawn down in bracket-friendly slices rather than one painful lump. The right pace depends on your other income, your expected future brackets, and whether annual RMDs already apply.
Roth Inherited IRAs Are Different
An inherited Roth IRA is still subject to the 10-year emptying rule, but the distributions are generally tax-free. That reverses the planning logic: because there is no tax cost to leaving the money in place, it often makes sense to let an inherited Roth grow tax-free for the full 10 years and withdraw it all at the end.
How VarStan Helps
Inherited-IRA rules are one of the easiest places to quietly overpay — or to miss a required distribution and trigger a penalty. As a CPA-led firm, we map out which rule applies to your specific inheritance, build a year-by-year withdrawal plan that smooths the tax hit, and coordinate it with the rest of your return. If you have inherited an IRA and are not sure what your deadline or your annual obligation is, a short conversation can save you a great deal.
Related reading: Closing Your Business the Right Way: A Tax and Bookkeeping Wind-Down Checklist and HSA Strategy for Business Owners: Contributions, Transfers, and the Long Game.