inherited IRAs and beneficiary rules

In short

A friend of mine lost his mother last spring, and a month later a letter from her IRA custodian landed on his kitchen table. He had no idea what to do with it. If you are in that spot, take a breath, because the clock is slower than the paperwork makes it feel. Start by getting a certified copy of the death certificate and finding out who the named beneficiary is on the account. Do not cash out the account in a hurry, since a big withdrawal can bring a big tax bill. Learn which kind of beneficiary you are, because that sets how fast the account must be emptied. Then check whether the original owner had already begun required withdrawals, since that changes your yearly duties. Write down the dates, and call a tax professional before you move a dime.

The whole of it

What it is

I once watched an old neighbor spend an afternoon sorting his late wife's papers, and what he wanted most was to do right by her. An inherited IRA is the account you hold after the original owner of an individual retirement account has died and you were named to receive it. The money does not vanish into the estate if a beneficiary was named. It passes to the person on the form, which is why that form matters more than almost any will.

You have probably heard that the rules changed a few years back. They did. A law called the SECURE Act, and a follow up law called SECURE 2.0, reshaped how fast most heirs must empty these accounts. The IRS explains the details in Publication 590-B, which covers distributions from IRAs. It is the page to trust when someone at a dinner table tells you what they think the rule is.

How it works

If you are holding one of these accounts, the first question is what sort of beneficiary you are. The tax law sorts heirs into three groups. A spouse has the most freedom. A group the law calls eligible designated beneficiaries gets some extra room, and it includes minor children of the owner, disabled or chronically ill people, and people not more than the current figure, which the official source publishes each year years younger than the owner. Everyone else is a designated beneficiary, such as an adult child or a friend, and that group faces the tightest clock.

A spouse can often treat the account as their own, which means they roll it into their own IRA and follow the usual rules for their age. A spouse can also keep it as an inherited account. That choice can help a younger widow or widower who wants to reach the money before age the current figure, which the official source publishes each year without a penalty. It is worth a careful talk with a tax professional.

An adult child is usually under what is called the ten year rule. The account must be fully emptied by the end of the tenth year after the owner died. There is a wrinkle that trips people up. If the owner had already reached the age when required withdrawals begin, which is 73 for 2024 (source, checked 9/27/2026), then the heir often must also take a yearly withdrawal during those ten years. If the owner had not reached that age, no yearly amount is required, though the account must still be empty at year ten. The IRS finalized rules on this, and Publication 590-B describes them.

The type of account matters for taxes. Money from a traditional inherited IRA is taxed as ordinary income when it comes out. Money from an inherited Roth IRA is generally not taxed, as long as the original Roth was open long enough. The ten year clock can still apply to a Roth. Plain enough, but easy to forget.

The numbers, and where to find yours

Folks in this situation often ask me where to find the figures that apply to them. Three numbers drive nearly everything. The first is the date of death, which starts the clock. The second is the account balance on December 31 of the year before you take a required withdrawal. The third is the life expectancy factor, which comes from an IRS table in Publication 590-B. The custodian, meaning the bank or brokerage holding the account, usually reports the year end balance on a form called the 5498. You can also ask the custodian for it by phone.

The age when required withdrawals start is 73 for 2024 (source, checked 9/27/2026), set by law and listed on the IRS website. The penalty for missing a required withdrawal is a percent set by law, currently the current figure, which the official source publishes each year, and the IRS page on required minimum distributions names the figure. Check the date on any figure you read. These numbers move, and an old article can lead you wrong.

A worked example

Let me tell you about a woman I will call Marta. Her father, Walter, died at age 78 with a traditional IRA worth $200,000. Walter had already begun taking required withdrawals. Marta, 50, was the named beneficiary, so she is a designated beneficiary under the ten year rule.

Suppose the custodian says the account held $200,000 on the last day of the year before her first withdrawal. Suppose also that the IRS table gives a factor of 34.2 for her age. Her required amount for that year is $200,000 divided by 34.2, which is $5,848. Because Walter had begun withdrawals, Marta must take at least $5,848 that year. If she skips it, the IRS can charge a penalty on the shortfall.

Now say the account grows and the next year's balance is $210,000. The factor drops by one, to 33.2. Her next required amount is $210,000 divided by 33.2, which is $6,325. She keeps doing this each year. By the end of year ten, she must withdraw whatever remains.

Here is the part that matters for her wallet. Marta earns $90,000 a year. If she took the whole $200,000 in one year, her taxable income would jump to $290,000, and much of it would be taxed at higher rates. If she spreads it across ten years, each slice adds less to her income. Say she takes about $20,000 a year, which on top of $90,000 makes $110,000 of income. That is a gentler climb. The right pace depends on her own situation, and a tax professional can run the numbers with her real return in hand.

Where it goes wrong

I have seen good people stumble here, and it is rarely from carelessness. It is from not knowing the rules had changed. The first slip is moving the money into your own IRA when you are not a spouse. A non spouse who does this can trigger a taxable distribution of the whole account. The money must stay in an account titled as an inherited IRA, and it must move by a direct transfer between custodians, never a check made out to you.

The second slip is missing a required withdrawal in a year it applied. The IRS can charge a penalty, though it may waive it if the miss was for a good reason and the heir fixes it. The third slip is assuming the old stretch rule still applies. It does for some heirs, but for most adult children it ended. Another mistake is forgetting the beneficiary form itself. If the owner never named someone, or named a person who died first, the account may go to the estate, and the rules there can be harsher. Check the form early.

Also watch the year of death. If the owner died before taking that year's required withdrawal, the heir often must take it. That is easy to overlook in the fog of a funeral.

Questions to answer before you leave this page

Before you go, ask yourself a few things, and write down the answers. Who is named as the beneficiary on the account, and do you have the custodian's letter confirming it? Are you a spouse, an eligible designated beneficiary, or a designated beneficiary, and which clock does that put you on? Had the original owner already reached the age when required withdrawals begin, and did they take that year's amount before passing? What was the account balance on December 31 of last year, and which life expectancy factor in IRS Publication 590-B fits your age? Is the account a traditional or a Roth IRA, and how will each withdrawal change your taxable income? Have you set up a direct transfer into an account titled as an inherited IRA, and have you marked the year ten deadline on a calendar you will actually see? And have you booked a short talk with a tax professional who can look at your whole picture?