Inheriting an IRA under the 10-year rule

If you’ve inherited an IRA from someone who died after 2019, the rules are different from the ones your parents knew. The old “stretch” over your lifetime is gone for most beneficiaries. In its place is a clock.

Who the 10-year rule applies to

Most non-spouse beneficiaries, including adult children, must empty an inherited IRA by the end of the tenth year after the year of death.

Some beneficiaries, called eligible designated beneficiaries, still have more flexible options. They include:

• a surviving spouse

• the owner’s minor child (until they reach majority)

• a disabled or chronically ill beneficiary

• a beneficiary not more than ten years younger than the owner.

Do you also have to take withdrawals every year?

This is where many people are caught out. If the original owner had already started required distributions before they died, most beneficiaries on the 10-year rule must also take an annual distribution in years one through nine, and then empty the account by the end of year ten. After several years of relief, the IRS now expects these annual withdrawals to be taken.

If the owner died before their required beginning date, there are no annual requirements, only the ten-year deadline.

Inherited Roth IRAs follow the ten-year rule too, but without annual withdrawals, and qualified withdrawals are tax-free.

The real decision: when to take the money

Every dollar withdrawn from an inherited traditional IRA is taxed as ordinary income in the year you take it. Ten years gives you room to choose those years well:

• Spread it evenly to avoid pushing any single year into a higher bracket.

• Take more in low-income years: a sabbatical, early retirement, a year with a business loss.

• Take less in high-income years: a large vest, a bonus, the year you sell something.

• Avoid leaving it all for year ten, when the whole balance lands on one return.

Other things to settle in the first year

• Retitle the account correctly as an inherited IRA. Moving it into your own IRA by mistake can make the whole balance taxable.

• Check the basis of taxable accounts you inherited. Stocks and property usually receive a stepped-up basis to their value at death, so selling soon after may produce little gain. IRAs don’t receive a step-up.

• File the final returns. Your parent’s final individual return, and possibly estate or trust returns, are due on their own schedule.

How we help

We confirm which rules apply to you, build a withdrawal schedule across the ten years that fits your own income, and prepare the final returns for the person who died. It’s one list, one timeline and one team, at a time when you shouldn’t have to manage several.