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. The account grows tax-free for as long as you live, with no IRS-mandated withdrawal schedule forcing your hand. But there is a buried clause that catches families flat-footed every year. The moment you die, that protection ends. Whoever inherits your Roth IRA faces a required withdrawal schedule, and missing it triggers a 25% excise tax on the amount they should have taken out.

Inherited Roth IRAs have a clock

While you are alive, your Roth IRA is fully 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. The tax-free status of qualified withdrawals survives the transfer to a beneficiary. The unlimited runway does not.

That was not always how it worked. Before the SECURE Act took effect in 2020, non-spouse beneficiaries could spread inherited IRA distributions across their own lifetimes, a strategy known as the “stretch IRA.” A 40-year-old inheriting a parent’s account could take small, manageable distributions over decades, letting the bulk of the balance keep compounding. Congress ended that option for most heirs, replacing it with the hard 10-year deadline now in force.

The legal foundation

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 Treasury Department and IRS then issued final regulations (T.D. 10001) on July 19, 2024, clarifying key implementation details and making the rules fully effective beginning January 1, 2025. The underlying authority is Internal Revenue Code §401(a)(9), which governs distributions from inherited retirement accounts. Separately, SECURE 2.0 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.

One important piece of recent history: the IRS issued a series of penalty-relief notices (Notices 2022-53, 2023-54, and 2024-35) covering tax years 2021 through 2024, waiving excise taxes on missed inherited IRA distributions while the rules remained unsettled. That grace period is now closed. Beginning with the 2025 tax year, missed distributions trigger the full 25% excise tax with no further blanket relief on offer.

Who it applies to, and who escapes it

The 10-year rule targets non-eligible designated beneficiaries: adult children, grandchildren, siblings, friends, and most non-spouse heirs. A smaller group called eligible designated beneficiaries receives more favorable treatment. That group includes a surviving spouse (who can roll the Roth into their own IRA and sidestep RMDs entirely), a minor child of the deceased (until that child turns 21, at which point the 10-year clock begins), a disabled or chronically ill beneficiary, and any beneficiary no more than 10 years younger than the original owner. Beneficiaries who are older than the deceased owner also fall outside the 10-year rule. For everyone outside that protected group, the clock starts the year after the owner dies.

One clarification worth noting: the final regulations set age 21 as the universal threshold for minor children, replacing a prior approach that deferred to state law. Most states set the age of majority at 18, while a handful used 19 or 21, and that variation created genuine confusion for families navigating the rules. The 2024 final regulations resolved the inconsistency by drawing a single nationwide line at 21.

How to use the window without blowing it up

For an inherited Roth IRA, the IRS gives you genuine flexibility inside the 10-year window. Because the original Roth owner never had a Required Beginning Date, the account is always treated as a pre-RBD death for inherited-IRA purposes. That means no required annual withdrawals during years 1 through 9. You can take a little each year, skip distributions entirely for nine years and drain the account in year 10, or choose any combination in between. Here is a practical framework for navigating the window:

1. Confirm whether the original owner held the Roth for at least five years. If yes, withdrawals of earnings come out completely tax-free. If the five-year clock had not yet run, earnings may remain taxable until it does.
2. Map your own tax bracket over the next 10 years. If you are mid-career and in a high-earning phase, spreading tax-free Roth pulls across several years is a smarter approach than a single large withdrawal late in the window.
3. Watch for the “kiddie tax” if the beneficiary is a full-time student under age 23. Investment income for those filers, including IRA distributions, can be taxed at the parents’ marginal rate rather than the student’s own lower rate, which changes the math on when to take money out.
4. Avoid the year-10 lump sum trap. Even though Roth distributions are typically tax-free, a single large withdrawal can complicate Medicare IRMAA surcharges (which in 2026 begin at $109,000 of modified adjusted gross income for single filers, based on income reported two years earlier), financial-aid calculations, and any non-qualified portion that remains taxable. A retiree who crosses that $109,000 line pays a standard Part B premium of $202.90 per month before the surcharge even starts.
5. Mark December 31 of year 10 on the calendar. That is the hard deadline. The account must show a zero balance by then.

For those still in the accumulation phase, there is also a planning opportunity on the owner’s side: converting a traditional IRA to a Roth before death can pass a tax-free inherited account to heirs rather than a fully taxable one. That conversion cannot happen after the fact on a non-spousal inherited IRA, so it requires action while the original owner is still alive.

The 25% penalty, and how it actually works for Roths

For an inherited Roth IRA, the penalty exposure comes down to one critical date: the end of year 10. Because Roth owners have no Required Beginning Date under IRC §408A(c)(5), beneficiaries of inherited Roth IRAs face no required annual distributions in years 1 through 9. The 10-year rule still applies in full, but the only way to trigger the 25% excise tax is to leave money in the account past December 31 of year 10. Whatever balance remains after that deadline is subject to the 25% charge. Self-correcting and filing Form 5329 within the IRS’s two-year correction window reduces that rate to 10%.

The more complex annual-RMD scenario applies to traditional inherited IRAs where the original owner had already passed their Required Beginning Date before dying. In those cases, beneficiaries face required annual withdrawals in years 1 through 9 and full depletion by year 10, creating multiple potential penalty events across a decade. For a pure inherited Roth, the trap is simpler: one date, one deadline, one entirely avoidable reason an account built over decades of tax-free compounding gets penalized on the way out. That reason is not knowing the rule existed.

This is general education, not personalized financial advice.

Editor’s note: This pass added context on the pre-2020 “stretch IRA” strategy that the SECURE Act eliminated for most non-spouse beneficiaries, incorporated the “kiddie tax” consideration for student-age beneficiaries under age 23, added the standard 2026 Medicare Part B premium of $202.90 per month to sharpen the IRMAA discussion, clarified that 2026 IRMAA surcharges are calculated from 2024 income under the two-year lookback rule, and added a note on the estate-planning value of Roth conversions made during the original owner’s lifetime.

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