The rules governing inherited IRAs changed significantly with the SECURE Act, and many beneficiaries are still navigating what applies to them. The right path forward depends on who you are, when you inherited, and what the original account holder had already done.
The rules around inheriting an IRA used to be clear. A beneficiary could stretch distributions over their own lifetime, taking modest annual withdrawals and allowing the remaining balance to continue growing tax-deferred for decades. The SECURE Act of 2019 ended that for most people. Final IRS regulations clarified how annual required distributions apply for many beneficiaries beginning in 2025. What replaced the old rules is a set of requirements that varies depending on your relationship to the original account holder, their age at the time of their passing, and whether they had reached their required beginning date for required minimum distributions.
The first step is knowing which set of rules applies to you.
If You Inherited from a Spouse
Surviving spouses have options that no other beneficiary receives, and the right choice depends heavily on your age and financial situation.
Roll the inherited IRA into your own IRA. This treats the assets as your own from that point forward, and your RMDs are calculated based on your age. This is often the right choice for a surviving spouse who is past age 59½ and does not need the funds immediately. If the original owner had not yet reached their required beginning date for RMDs, this option also allows you to delay distributions further until you reach RMD age.
Keep it as an inherited IRA with life expectancy payments. This option matters most if you are under age 59½. Withdrawals from an inherited IRA are not subject to the 10% early withdrawal penalty that applies to your own IRA before that age. Keeping the account as an inherited IRA preserves penalty-free access to funds during that period.
Take a lump sum distribution. A lump sum is rarely the right recommendation unless the account balance is relatively small. The entire balance becomes taxable ordinary income in a single year, which in most cases creates a significant and avoidable tax event.
The spousal decision is one where timing and age drive the answer more than anything else. Getting it wrong is easy to do without guidance, and the consequences are difficult to reverse.
A client came to us after losing her husband. She had inherited his IRA, and the choice was whether to keep it as an inherited IRA or roll it into her own. She was under 59½, which meant treating it as her own would have exposed any distributions she took to a 10% early withdrawal penalty. We kept it as an inherited IRA to preserve her liquidity options. Years later, when it was clear she did not need that flexibility, we converted it to her own IRA and implemented a Roth conversion strategy. Keeping the door open cost nothing. Closing it early would have.
If You Are a Non-Spouse Beneficiary
For most non-spouse beneficiaries who inherited in 2020 or later, the 10-year rule applies. The full balance must be distributed by December 31 of the tenth year following the original owner’s death. What many people do not realize is that the rule works differently depending on one key factor: whether the original owner had already reached their required beginning date for RMDs at the time of their passing.
If the original owner had not yet reached their required beginning date, no annual distributions are required within the 10 years. You have flexibility to take nothing for nine years and withdraw the full balance in year ten, or distribute in any pattern you choose, as long as the account is empty by the deadline.
If the original owner had already begun taking RMDs, annual distributions are required in each of the first nine years, with the remaining balance distributed in year ten. The amount required each year is calculated based on your own life expectancy.
There are exceptions. Certain beneficiaries are classified as eligible designated beneficiaries and are not subject to the 10-year rule. They may still take distributions over their own life expectancy. This group includes minor children of the account owner, disabled or chronically ill individuals, and beneficiaries who are not more than ten years younger than the original owner. If you believe an exception may apply, a CPA or financial advisor can confirm which category you fall into.
The Distribution Decision Within the 10-Year Window
For those subject to the 10-year rule with flexibility in how they distribute, this is not an administrative decision. It is a tax planning decision, and the difference between a thoughtful strategy and a default one can be meaningful.
Take only the minimum each year, lump sum in year ten. This defers income as long as possible but concentrates a large taxable distribution in the final year. Depending on the size of the account and your other income, year ten can produce a significant tax spike.
Distribute equally over ten years. Spreading the balance into ten roughly equal withdrawals smooths the tax impact and avoids single-year concentration. For many beneficiaries still in their higher earning years, this is a reasonable baseline.
Distribute based on your tax bracket each year. The most tax-efficient approach draws down the account strategically, taking more in lower-income years and less in higher ones. This requires projecting income across the full ten-year window, where coordination with your CPA and wealth manager becomes essential.
A family came to us after inheriting a traditional IRA while also preparing for a move into a retirement community. The entrance fee created a large medical deduction in the year of the move, which changed the distribution conversation. Rather than spreading withdrawals evenly by default, we coordinated with their CPA to evaluate whether taking a larger inherited IRA distribution in that same tax year could use the deduction more effectively. The point was not to accelerate distributions for their own sake. It was to match the IRA strategy to the tax year, the family’s cash-flow needs, and the window created by the retirement community expense. A rule that looked administrative became a planning opportunity.
The rule sets the deadline. The plan determines the outcome.
The right strategy depends on your current income, expected income over the ten-year period, the size of the inherited account, and whether the assets are in a traditional or Roth IRA. A Roth inherited IRA follows the same 10-year rule for non-spouse beneficiaries, but qualified distributions are generally tax-free, which changes the calculus considerably.
Practical Steps If You Have Recently Inherited an IRA
Determine which rules apply to you. Your relationship to the original owner, their age at death, and whether they had reached their required beginning date all affect what is required. This is not always obvious, and getting it wrong has consequences. Your financial advisor and CPA can establish this clearly and quickly.
Do not let the 10-year window create a false sense of time. Ten years feels long. For a large account, failing to plan distributions across that window can result in unnecessarily compressed tax exposure in the later years. The time to begin planning is now, not year eight.
Build a draw-down strategy before you take any distributions. Once you know which rules apply, build a plan for how and when to take distributions across the window you have. That plan should account for your projected income, your tax situation in each year, and how the inherited account fits into your broader financial picture. This is not a one-time conversation. It is an ongoing strategy that benefits from annual review.
At Richard P. Slaughter Associates, every advisor on the team holds the CFP® certification, and the firm has been fee-only and fiduciary since 1991. Getting an inherited IRA right requires tax strategy, estate planning, and investment management working together, not addressed in isolation. We work alongside your CPA and estate attorney to help you understand which rules apply, what your options are, and how to make the most of the window you have.
If any of this resonates — whether you have recently inherited an IRA and are not sure which rules apply, you are working through the distribution decision, or you want to make sure you are building the right strategy before the window closes — we would welcome a conversation.
Richard P. Slaughter Associates is a Registered Investment Advisor. This content is for informational purposes only and does not constitute personalized investment advice. Past performance is not indicative of future results. CFP Board owns the certification marks CFP®, CERTIFIED FINANCIAL PLANNER™, and CFP® (with plaque design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
