Honestly, inheriting an IRA used to be a pretty sweet deal for your tax bill. You could "stretch" those distributions over your entire life, taking tiny bits out and letting the rest grow. But the government changed the locks on that door.
If you've recently come into an inherited account, you're likely staring at a mess of acronyms—RMDs, EDBs, SECURE Act 2.0—and wondering how much the IRS is about to shave off the top. Most people think they can just let the money sit for a decade. They're often wrong.
In 2026, the rules are stricter than they've ever been.
The 10-Year Rule Isn't as Simple as It Sounds
Basically, if you aren't a spouse, the IRS generally wants you out of that account within a decade. This is the 10-year rule. You have to empty the entire account by December 31 of the year containing the 10th anniversary of the original owner's death.
But here’s the kicker that trips everyone up: the "at least as rapidly" rule.
For a few years, there was total chaos. The IRS actually waived penalties for people who didn't take annual distributions between 2021 and 2024 because even the experts were confused. Those "hall pass" years are over.
If the person you inherited the IRA from had already started taking their own Required Minimum Distributions (RMDs)—meaning they were 73 or older—you can't just wait until Year 10 to take the money. You have to take annual RMDs in years one through nine, and then empty the rest in Year 10.
If they died before their "Required Beginning Date," you usually have more flexibility. You could potentially wait until the very last minute to take a dime. But is that smart? Probably not. Taking a $500,000 lump sum in Year 10 could catapult you into the highest tax bracket.
Who Gets a Pass? The "Eligible" Crowd
Not everyone is stuck with the 10-year clock. A specific group called Eligible Designated Beneficiaries (EDBs) still gets to use the old "stretch" rules.
- Surviving Spouses: You have the most power. You can treat the IRA as your own, roll it into your existing account, and wait until you hit age 73 (or 75, depending on your birth year) to start taking money.
- Minor Children of the Owner: Note the word children. Grandkids don't count. These kids can take RMDs based on their life expectancy until they hit 21. Once they turn 21, the 10-year clock starts ticking.
- Disabled or Chronically Ill Individuals: The IRS has very specific, strict definitions here, but if you qualify, you can stretch distributions over your life.
- The "Close in Age" Peer: If you're not a spouse but you are within 10 years of the original owner's age (think siblings or a long-term partner), you can also use the life expectancy stretch.
Traditional vs. Roth: A Tale of Two Tax Bills
You've got to know what kind of "bucket" you just inherited.
Traditional IRAs are the ones that hurt. Every dollar you pull out is taxed as ordinary income. If you're a high earner in your 50s and you inherit a big Traditional IRA, those mandatory distributions might feel like a punch in the gut.
Roth IRAs are much friendlier. You still usually have to empty the account within 10 years, but the withdrawals are tax-free. Why? Because the original owner already paid the tax. The smartest move with a Roth is almost always to let it sit, untouched, until the very end of the 10th year. Let that tax-free growth compound as long as possible.
The 2026 Penalty Reality Check
Starting now, the IRS isn't playing around with missed RMDs. The penalty used to be a massive 50% of the amount you failed to withdraw.
SECURE 2.0 dropped that to 25%. If you fix the mistake quickly, it can even go down to 10%. Still, giving the government 10% of your inheritance for a paperwork error is a terrible way to spend your money.
Actionable Steps for Beneficiaries
Don't just let the account sit there.
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- Check the "Date of Death" RMD: If the original owner died this year and hadn't taken their RMD yet, someone has to take it by December 31. That’s usually the beneficiary.
- Retitle the Account Immediately: You cannot just leave it in the deceased person's name. It needs to be an "Inherited IRA" (e.g., John Doe, deceased, for the benefit of Jane Doe). If you take a check in your own name, you've potentially triggered a massive tax bill that can't be undone.
- Map Your Tax Brackets: Sit down with a 10-year calendar. If you know you're retiring in Year 6 of the window, maybe you wait to take larger distributions then, when your income drops.
- Verify the Age of the Deceased: This is the "on-off" switch for whether you need annual distributions or just a Year 10 exit. If they were 73 or older, you're on the hook for yearly withdrawals.
The "stretch" IRA might be dead for most of us, but strategic planning over that 10-year window can still save you tens of thousands in unnecessary taxes.