There’s an Exception to the “No RMDs” Rule for Roth IRAs. Get It Wrong, and You Could Face a 25% Tax Bill.

If you own a Roth IRA, you already know the headline perk: no required minimum distributions during your lifetime. You can let it grow, tax free, for as long as you live. But here is the buried clause that catches families flat-footed every year: the moment you die, that “no RMDs” protection dies with you. Whoever inherits your Roth IRA is subject to a required withdrawal schedule, and missing it triggers a 25% excise tax on the amount they should have taken out.

The reveal: inherited Roth IRAs have a clock

Here is what the fine print actually says. While you are alive, your Roth IRA is RMD-free. Once you pass, most beneficiaries fall under what the IRS calls the 10-year rule. The inherited Roth IRA must be fully drained within 10 years of the original owner’s death, even though it is a Roth. The tax-free status of qualified withdrawals usually survives. The unlimited runway does not.

The proof

The 10-year rule was written into the SECURE Act of 2019 and applies to most non-spouse beneficiaries who inherit from an owner who died in 2020 or later. The SECURE 2.0 Act then lowered the penalty for missed required distributions from 50% to 25% of the shortfall, with a further reduction to 10% if you self-correct within the IRS’s correction window. The underlying authority is Internal Revenue Code §401(a)(9), which governs distributions from inherited retirement accounts.

Who it applies to, and who escapes it

The 10-year rule hits non-eligible designated beneficiaries: adult children, grandchildren, siblings, friends, most non-spouse heirs. A small group called eligible designated beneficiaries gets better options. That group includes a surviving spouse (who can roll the Roth into their own IRA and skip RMDs entirely), a minor child of the deceased (until they reach the age of majority), a disabled or chronically ill beneficiary, and any beneficiary not more than 10 years younger than the original owner. If you are not in that protected group, the clock starts running the year after the owner dies.

How to use the window without blowing it up

Within the 10-year window, the IRS gives you flexibility on how you spread withdrawals. You can take a little each year, take nothing for nine years and drain it in year 10, or anything in between. Here is the smart playbook:

1. Confirm whether the original owner held the Roth for at least five years. If yes, your withdrawals of earnings come out tax free. If no, earnings may be taxable until that five-year clock finishes.
2. Map your own tax bracket over the next 10 years. If you are mid-career and earning, the tax-free Roth pulls are essentially free money. Take them strategically.
3. Avoid the year-10 lump sum trap. Even though Roth distributions are typically tax-free, a single giant withdrawal can complicate Medicare IRMAA surcharges, financial-aid calculations, and any non-qualified portion that is taxable.
4. Mark December 31 of year 10 on the calendar. That is the hard deadline. The account must show a zero balance by then.

The catch: a 25% penalty that can hit more than once

Here is the part almost nobody talks about. If the original owner had already begun their own RMDs (relevant when a traditional IRA is involved, or in mixed-account situations), some beneficiaries are required to take annual required minimum distributions starting the year after the owner died, in addition to draining the account by year 10. Skip one of those, and the 25% excise tax applies to the shortfall. Skip it for multiple years, and each year is its own penalty event. The 25% can drop to 10% if you fix the miss within the IRS correction window and file Form 5329.

For a pure inherited Roth where the original owner never had an RMD obligation, the gotcha simplifies to one date: end of year 10. Miss it, and 25% of whatever is left behind goes to the IRS. The asset your parent or grandparent spent decades shielding from taxes gets clipped on the way out the door, for the one reason that is entirely avoidable: not knowing the rule existed.

This is general education, not personalized financial advice.