Someone died, and a few weeks later a custodian sent you paperwork with your name on an account you didn't ask for. The forms use words like designated beneficiary and required beginning date, the phone rep reads from a script, and nobody will tell you what to do because they're not allowed to. So the statements pile up and the account just sits there.
You've probably also heard something about ten years, and maybe absorbed the idea that the deadline is the only rule that matters. That's the part that costs families the most. Waiting until year ten and taking the whole balance in one distribution is legal, and it can land the entire account in a single tax year at the worst possible time. We've seen it happen. Let's make sure it doesn't happen to you.
Find out which kind of beneficiary you are
Everything else follows from this one fact, so let's pin it down before you touch anything. The rules split beneficiaries into categories, and the same account produces very different obligations depending on which one applies to you. Yes, the IRS made this complicated. No, you don't have to figure it out alone.
Two dates also matter: the year the original owner died, and whether they'd reached the age at which their own required distributions were supposed to begin. Have both in hand before you call the custodian.
- A surviving spouse has options nobody else gets, including moving the money into their own IRA or remaining a beneficiary of the inherited account.
- Certain beneficiaries are treated as eligible designated beneficiaries and can generally stretch distributions over a longer horizon. The categories include a minor child of the account owner, someone who is disabled or chronically ill under the tax code's definitions, and a beneficiary not more than ten years younger than the original owner.
- Most adult children, siblings, and other non-spouse individuals fall into the group governed by the 10-year rule.
- A trust named as beneficiary has its own rules that depend on how the trust is drafted, and the difference between a conduit trust and an accumulation trust changes the tax outcome significantly. If a trust is involved, get the document in front of an attorney before taking a distribution.
- An estate or a non-individual beneficiary is generally subject to a shorter and less flexible timeline. This often happens when no beneficiary was named at all.
How the 10-year rule actually works
For most non-spouse beneficiaries who inherited from an owner who died in 2020 or later, the account has to be fully distributed by the end of the tenth year following the year of death. That's a deadline for emptying the account. By itself it says nothing about what you take in years one through nine.
Whether annual withdrawals are required during those years depends on the original owner. If they'd already reached their required beginning date and were taking required minimum distributions, annual distributions are generally required in the intervening years, with the remainder due by the end of year ten. If they died before that point, annual distributions generally aren't required and the whole balance just has to be out by the deadline. The IRS finalized regulations on this in recent years after a long stretch of uncertainty, so guidance you read early in the SECURE Act era may not reflect the current rules. Confirm your specific situation with your CPA.
Why the withdrawal schedule is a tax decision
Distributions from an inherited traditional IRA are taxed as ordinary income in the year you take them. Ten years of flexibility means you have some control over which years those dollars show up in, and that control is the most valuable thing the account gives you.
The variables worth mapping are your own. Which of the next ten years do you expect to be high-income, and which low? Does a retirement or career change fall inside the window? Are you near a threshold that triggers extra taxes or higher Medicare premiums, and would a large distribution push you into a higher bracket? Some households spread withdrawals evenly to keep each year smooth. Others front-load into low-income years, or wait through a stretch of peak earnings. The right pattern depends entirely on the shape of your own decade, which is why there's no single correct schedule.
One detail worth knowing: the extra tax that normally applies to early retirement account withdrawals doesn't apply to inherited IRA distributions, regardless of your age. Your age doesn't restrict when you can take the money. It just affects what taking it costs you in tax.
What a surviving spouse can do that nobody else can
A spouse generally has the option to treat the inherited account as their own, which folds it into their existing IRA and puts it on their own required distribution schedule. The alternative is to stay a beneficiary of an inherited IRA, which keeps different rules in place around timing and access.
Which path fits usually turns on age and cash flow. A younger surviving spouse who may need the money before the standard retirement age often has reason to consider staying a beneficiary, because inherited IRA distributions avoid the early withdrawal penalty. A spouse who doesn't need the money and wants to defer as long as possible may prefer their own IRA. This decision has lasting consequences, and it deserves more than a form filled out in the first month after a loss.
The mistakes that are hard to undo
Most of the damage in inherited IRAs happens in the first ninety days, from paperwork rather than investment decisions. A few of these can't be reversed at all.
Slow down on the custodian forms. There's no penalty for taking a few weeks to understand the account, and there are real penalties for the alternatives.
- Taking a distribution when you meant to transfer. A non-spouse beneficiary can't put the money back. Unlike your own IRA, there's no 60-day rollover, so a check made out to you is a taxable distribution, permanently. Move the money by trustee-to-trustee transfer into a properly titled inherited IRA.
- Titling the account incorrectly. An inherited IRA has to be registered showing the deceased owner and you as beneficiary. A transfer into an account in your own name alone can be treated as a full distribution.
- Cashing out to pay off a mortgage or a bill without running the tax first. A large single-year distribution can move you into a higher bracket, trigger extra taxes on investment income, and raise Medicare premiums later.
- Missing a required annual distribution when one applies. A penalty attaches to the shortfall, though relief is available in some cases if you correct it and file the right form.
- Overlooking your own beneficiary designation on the inherited account. If you die during the window, whoever you named inherits the remaining balance and the deadline that came with it.
- Ignoring an estate tax deduction that may be available. If federal estate tax was paid on the account, beneficiaries can sometimes deduct a portion attributable to those distributions. Ask your CPA rather than assuming it doesn't apply.
What to do next
- Write down the original owner's date of death, their age at death, and whether they'd begun required distributions. Those three facts determine which rules apply to you.
- Have the custodian move the balance by trustee-to-trustee transfer into a correctly titled inherited IRA, and confirm the registration in writing before you take any distribution.
- Book a 20-minute introductory call. We'll map the ten-year window against your own expected income so the withdrawal schedule is a decision rather than a default.
Frequently asked questions
Do I have to take money out every year, or just by year ten?
It depends on whether the original owner had already started their own required minimum distributions. If they had, annual distributions are generally required during the intervening years and the balance is due by the end of year ten. If they hadn't, annual distributions generally aren't required and only the year-ten deadline applies. Your CPA can confirm which applies to your account.
Is an inherited Roth IRA treated the same way?
The deadline works similarly for most non-spouse beneficiaries, so the account generally has to be emptied within the ten-year window. The tax treatment is different, because qualified Roth distributions are generally not taxable. That combination often argues for leaving an inherited Roth alone until later in the window, though the holding period rules matter and are worth confirming.
Can I combine an inherited IRA with my own IRA?
No, unless you're the surviving spouse and elect to treat the account as your own. A non-spouse beneficiary has to keep the inherited IRA separate, can't contribute to it, and can't roll it into a personal IRA. Inherited IRAs from two different original owners can't be combined with each other either.
What if the IRA was left to several people?
The account is normally split into separate inherited IRAs for each beneficiary, and doing that promptly matters because it lets each person use their own classification and timeline. If the account stays undivided past the applicable deadline, the whole group can end up governed by the least favorable beneficiary's rules.
Should I keep the investments the original owner chose?
That's a separate question from the distribution schedule, and the two should be answered together. A portfolio built for someone in their eighties is unlikely to suit a beneficiary who'll hold the account for a decade and has different goals for the money. What makes sense depends on your situation, which is exactly what the planning conversation is for.
