You just inherited an IRA. First off, I'm sorry for your loss. It’s a heavy time, and honestly, the last thing anyone wants to do while grieving is dive into 260 pages of IRS final regulations. But here we are. The government has a way of making "free money" feel like a part-time job.
If you’re sitting there thinking you can just let that money sit and grow for thirty years like people used to, I have some bad news. The old "stretch IRA" is basically dead for most of us.
The irs rules for inherited ira underwent a massive earthquake with the SECURE Act, and then a series of aftershocks through 2024 and 2025. If you inherited an account from someone who passed away after December 31, 2019, you are likely staring down a ten-year ticking clock.
The 10-Year Rule Isn’t as Simple as It Sounds
Most people hear "10-year rule" and assume they can just wait until year ten, flip the switch, and take everything out in one go. You could do that—sorta. But the IRS added a nasty little twist in their final regulations that caught everyone off guard.
It depends on whether the person you inherited the IRA from had already started taking their own Required Minimum Distributions (RMDs).
If the original owner was already in "payout mode" (usually age 73 or older these days), the IRS says you can’t just wait ten years. You have to take annual RMDs in years one through nine, and then empty the whole thing by the end of year ten. This is the "at least as rapidly" rule. Basically, if the IRS was already getting their tax cut every year while the owner was alive, they aren't about to let you stop that cash flow just because the owner passed away.
On the flip side, if the original owner died young—before they hit their RMD age—then yeah, you can generally let it sit for a decade and take it all out in year ten. But should you? Probably not.
Taking a $500,000 inheritance all in one tax year is a great way to hand a massive chunk of it right back to the government in the form of a higher tax bracket.
Wait, Am I an "Eligible" Beneficiary?
The IRS loves categories. They’ve split the world into "Designated Beneficiaries" and "Eligible Designated Beneficiaries" (EDBs). If you are an EDB, you hit the jackpot—well, the tax jackpot, anyway.
You actually get to keep the "stretch" and take distributions over your own life expectancy. This elite club includes:
- Surviving spouses (who have the most flexibility, like rolling the IRA into their own).
- Minor children of the account owner (but only until they hit 21—then the 10-year clock starts).
- People who are disabled or chronically ill.
- Anyone not more than 10 years younger than the deceased (think siblings or partners).
If you’re an adult child who is healthy and 20 years younger than your parent, you’re just a regular "Designated Beneficiary." Welcome to the 10-year club.
The 2025/2026 Penalty Cliff
For a few years, the IRS was actually... kind? They knew their new rules were confusing, so they waived the penalties for people who missed their annual RMDs from 2021 through 2024.
That grace period is over.
Starting in 2025, the IRS is back to enforcing the rules. If you were supposed to take an RMD from an inherited IRA and you didn't, the penalty is 25% of what you should have taken. It can drop to 10% if you fix it quickly, but that’s still money down the drain. If you’re looking at your 2026 tax planning, you need to make sure those distributions are scheduled.
Roth Inheritances: A Different Beast
Inheriting a Roth IRA is much better, obviously, because the withdrawals are usually tax-free. But don't get it twisted—the irs rules for inherited ira still force you to empty a Roth account within 10 years if you aren't an EDB.
The main perk here is that you don't have to take annual RMDs in years one through nine, regardless of when the owner died. You can let that Roth money grow tax-free for the full ten years and then pull it all out at the very end. It’s one of the few "wins" left in the tax code for heirs.
Real Talk on Strategy
I’ve seen people blow their inheritance because they didn't account for the tax jump. If you inherit a traditional IRA, every dollar you take out is taxed as ordinary income.
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Think about your own career. If you’re in your peak earning years now but plan to retire in five years, it might make sense to take small withdrawals now and much larger ones once your other income drops. Or, if you think tax rates are going up in 2026 (when many current tax cuts are set to expire), you might want to pull more money out now while rates are historically low.
Check the math. It's not just about the 10-year deadline; it's about the "tax efficiency" of those ten years.
What to Do Right Now
- Identify the "Required Beginning Date": Find out if the person who passed away was already taking RMDs. This is the single biggest factor in whether you owe money to the IRS this year.
- Verify your status: If you have a chronic illness or disability, get the paperwork ready. It could save you decades of tax-deferred growth.
- Check the 5-year rule: If the original owner died way back before 2020, or if the beneficiary is an estate/charity, you might be under a 5-year rule instead of 10.
- Talk to a pro: Seriously. One mistake here can cost you a quarter of your inheritance in penalties alone.
The 2026 tax landscape is going to be messy with potential legislative changes, so staying on top of these distributions isn't just a suggestion—it's a requirement to keep what you've inherited.