Inherited IRAs: Navigating the 10-Year Rule Under SECURE Act 2.0

The SECURE Act 2.0 brought significant changes to how beneficiaries must handle inherited Individual Retirement Accounts (IRAs). Among the most impactful provisions is the 10-year rule, which fundamentally altered the distribution timeline for most non-spouse beneficiaries. Understanding these requirements is essential for anyone who has inherited: or expects to inherit: retirement assets, as failure to comply can result in substantial tax penalties.

This guide provides a comprehensive overview of the 10-year rule, clarifies who is affected, and outlines the critical distinctions that determine how beneficiaries must proceed with their inherited accounts.

Understanding the 10-Year Rule

The 10-year rule requires most non-spouse beneficiaries to completely deplete inherited IRAs by December 31 of the year containing the 10th anniversary of the account owner's death. This provision replaced the previous "stretch IRA" strategy, which had allowed beneficiaries to extend distributions over their own life expectancy: sometimes spanning several decades.

For beneficiaries who inherited IRAs in 2020 or later, the stretch IRA option is no longer available in most cases. Instead, beneficiaries must ensure the entire inherited account balance reaches zero within the prescribed 10-year window.

Example calculation: If an IRA owner passes away in May 2025, the beneficiary must fully deplete the inherited account by December 31, 2035.

Who Is Subject to the 10-Year Rule?

The 10-year rule applies broadly to individuals who inherited an IRA from someone who passed away in 2020 or later. However, the IRS has established a category of Eligible Designated Beneficiaries (EDBs) who remain exempt from this accelerated timeline and may continue using the stretch IRA approach.

Eligible Designated Beneficiaries (Exempt from the 10-Year Rule)

The following beneficiaries qualify for EDB status and are not subject to the 10-year rule:

• Surviving spouses of the original account owner
• Minor children of the original account owner (until they reach age 21)
• Individuals who are chronically ill or disabled as defined by IRS guidelines
• Beneficiaries who are not more than 10 years younger than the deceased owner
• Beneficiaries who are older than the deceased owner

Once a minor child reaches age 21, their EDB status ends, and the 10-year rule begins at that point.

Beneficiaries Subject to the 10-Year Rule

Most other beneficiaries fall under the 10-year rule, including:

• Adult children of the deceased
• Grandchildren
• Siblings, nieces, nephews, and other family members
• Friends or non-family beneficiaries
• Most trust beneficiaries (both conduit and accumulation trusts)

Taxpayers should carefully evaluate their beneficiary status to determine which distribution requirements apply to their situation.

Two Critical Scenarios: How the 10-Year Rule Functions

SECURE Act 2.0 introduced an important clarification that many beneficiaries initially misunderstood. The distribution requirements within the 10-year window depend on whether the original account owner had begun taking Required Minimum Distributions (RMDs) before their death.

Scenario 1: Owner Died Before Their Required Beginning Date

If the original IRA owner passed away before reaching their Required Beginning Date (RBD) for RMDs: meaning they had not yet started mandatory distributions: beneficiaries have greater flexibility:

• No annual RMDs are required during the 10-year period
• Beneficiaries may withdraw funds at their discretion
• Withdrawals can occur immediately, be spread across multiple years, or be delayed until year 10
• The only requirement is that the entire account balance must be distributed by the end of year 10

This scenario provides strategic flexibility for tax planning, as beneficiaries can time withdrawals to coincide with lower-income years.

Scenario 2: Owner Died On or After Their Required Beginning Date

If the original IRA owner passed away on or after their RBD: meaning they had already begun taking RMDs: the requirements are more restrictive:

• Annual RMDs are mandatory beginning the year after the owner's death
• Beneficiaries must calculate annual RMDs based on their own life expectancy using IRS Single Life Expectancy Tables
• Distributions must occur every year throughout the 10-year period
• The account must still be fully depleted by the end of year 10

This distinction is critical. Beneficiaries who inherited from owners already taking RMDs cannot simply wait until year 10 to withdraw all funds: they must take distributions annually or face penalties.

Penalty Enforcement and IRS Relief Provisions

The IRS initially provided relief from penalties for missed RMDs between 2020 and 2024, acknowledging widespread confusion about the new rules. However, full enforcement of RMD penalties resumed in 2025.

Current Penalty Structure

Beneficiaries who fail to take required annual RMDs (when applicable) now face the standard RMD penalty. While the SECURE Act 2.0 reduced the penalty from 50% to 25% of the missed distribution amount, this still represents a significant financial consequence. The penalty may be further reduced to 10% if the error is corrected within a specified timeframe.

Historical Relief Provisions

Under IRS Notice 2022-53, the IRS waived penalties for beneficiaries who missed RMDs in 2021 and 2022 due to confusion about the new requirements. Taxpayers who took advantage of this relief should ensure they are now in full compliance with annual distribution requirements moving forward.

Special Considerations for Inherited Roth IRAs

Non-spouse beneficiaries of inherited Roth IRAs are also subject to the 10-year rule: the account must be fully distributed within 10 years of the owner's death. However, Roth IRA distributions offer a significant advantage: qualified distributions from Roth IRAs are generally tax-free.

Key points for inherited Roth IRAs include:

• The 10-year distribution deadline still applies
• No annual RMDs are required during the 10-year period (regardless of whether the owner had reached their RBD)
• Distributions are typically not subject to income tax
• Surviving spouses have the option to treat an inherited Roth IRA as their own, potentially avoiding the 10-year rule entirely

For beneficiaries managing both traditional and Roth inherited IRAs, the Roth account may strategically benefit from being distributed last, allowing tax-free growth for as long as possible within the 10-year window.

Tax Planning Strategies for Beneficiaries

The accelerated distribution timeline under the 10-year rule creates significant tax planning challenges, particularly for beneficiaries who are in their peak earning years. Large distributions from traditional inherited IRAs are taxed as ordinary income, potentially pushing beneficiaries into higher marginal tax brackets.

Considerations for Developing a Withdrawal Strategy

Taxpayers should evaluate the following factors when planning inherited IRA distributions:

• Current and projected income levels throughout the 10-year period
• Anticipated changes in tax brackets due to career changes, retirement, or legislative shifts
• State income tax implications, which vary significantly by jurisdiction
• Coordination with other income sources, including Social Security, pensions, and investment income
• Potential for Roth conversions of other retirement assets during lower-income years

When to Consider Professional Guidance

Working with a qualified tax professional is advisable when:

• The inherited IRA balance is substantial
• The beneficiary has complex income sources or variable annual earnings
• The original owner died on or after their RBD, triggering annual RMD requirements
• Trust structures are involved in the inheritance
• The beneficiary is uncertain about their Eligible Designated Beneficiary status

Key Deadlines and Action Items

Beneficiaries subject to the 10-year rule should be aware of the following critical deadlines:

Failure to meet these deadlines may result in penalties, and the IRS is now actively enforcing compliance.

Next Steps for Inherited IRA Beneficiaries

Individuals who have inherited an IRA: or expect to receive one: should take the following steps:

1. Determine beneficiary classification (EDB or standard designated beneficiary)
2. Identify whether the original owner had begun RMDs before their death
3. Calculate annual RMD requirements if applicable
4. Develop a multi-year distribution strategy aligned with tax planning goals
5. Consult with a tax professional for personalized guidance

For additional information on retirement account rules and other tax updates, taxpayers may visit the TIG Tax Services Tax Updates page or review the IRS guidance on SECURE 2.0 Act provisions.

The 10-year rule represents a fundamental shift in inherited IRA planning. By understanding the requirements and developing a strategic approach to distributions, beneficiaries can minimize tax consequences while remaining in full compliance with IRS regulations.