If You Just Inherited an IRA, Read This

If you just inherited an IRA, the IRS could come calling years later with a bill you never saw coming. Under the SECURE Act, most non-spouse heirs now have 10 years to fully drain an inherited IRA. If the person who left it to you was already taking required minimum distributions (RMDs), you also owe an annual RMD in years one through nine. Miss one, and the penalty is severe.

The Two-Layer Rule Most Heirs Miss

Here is how the rule works. If you inherited an IRA from someone who died in 2020 or later and you are not their spouse, the account must be empty by December 31 of the tenth year after death. Many heirs know that part. What trips them up is the second layer: Treasury and the IRS issued final regulations in July 2024 (T.D. 10001) confirming that if the original owner had already reached their required beginning date (RMDs start at age 73), you must also take an annual RMD in each of years one through nine, then zero out the balance in year ten. Skipping those annual distributions because you assumed “I have 10 years” is a mistake that carries real financial consequences.

Worth knowing: the IRS had waived penalties for missed inherited IRA distributions each year from 2021 through 2024 while it worked through the regulatory process. That grace period ended. The final rules took effect January 1, 2025, and enforcement is now in place. Heirs who skipped distributions during the waiver years still face the full distribution schedule going forward.

If the original owner died before reaching their required beginning date, the math is different. In that case, non-spouse beneficiaries have no annual distribution requirement and can choose to wait until year ten, take distributions in any amount across the years, or skip years entirely, as long as the account reaches zero by the deadline.

The penalty for a missed RMD sits at 25% of the amount you should have taken. That drops to 10% if you correct the shortfall within a defined window and file Form 5329. Roth inherited IRAs get pulled into the 10-year rule as well, but the distributions come out tax-free.

Non-spouse heirs including adult children, siblings, friends, and most trusts are locked into the 10-year clock. A surviving spouse has meaningfully better options. You can roll the inherited IRA into your own account, treat it as your own from the start, or keep it as a separate inherited IRA. Rolling into your own account resets the RMD schedule to your age 73 and lets the money keep compounding on your timeline.

How to Play It Without Handing the IRS Extra

1. Confirm the decedent’s RMD status. If they had passed age 73, you need to take an annual RMD starting the year after death. If they died before reaching that age, you have more scheduling flexibility.
2. Retitle the account as an inherited IRA. Never roll a non-spouse inherited IRA into your own account. That move triggers a taxable distribution of the entire balance.
3. Model your tax brackets. For 2026, the 24% bracket for single filers covers taxable income from $105,700 up to $201,775, where the 32% rate begins (the married filing jointly equivalent is $403,550). Spreading withdrawals across multiple years keeps you from crossing those jumps unnecessarily.
4. Consider front-loading in lower-income years such as early retirement, a sabbatical, or a job transition rather than taking one large withdrawal in year ten.
5. If the account is a Roth, still track the 10-year deadline, but let the money grow tax-free as long as possible before pulling it out.

Taking the entire account as a lump sum can push your income into the 37% top bracket, which begins at $640,600 for single filers and $768,700 for married couples filing jointly in 2026. The damage does not stop at income taxes. A large distribution can also spike your Medicare Part B and Part D premiums two years later through IRMAA surcharges. In 2026, the standard Medicare Part B premium is $202.90 per month, but a single filer whose income crosses $109,000 begins paying surcharges that can push that monthly cost as high as $689.90. The income Medicare examines is your MAGI from two years prior, so a large inherited IRA withdrawal taken today surfaces in your premiums two years from now. On top of all that, a missed annual RMD triggers the 25% excise tax on the shortfall.

If you are looking at a new inherited IRA statement today, build the distribution schedule now rather than in year nine. A single missed RMD costs far more than most heirs realize, and the window to correct it quietly is shorter than it appears.

Editor’s note: This article was updated to reflect the correct July 2024 finalization date for the IRS inherited IRA final regulations (T.D. 10001), to note that the IRS penalty waiver period for missed distributions ran from 2021 through 2024 and ended with the 2025 effective date, to add 2026 IRMAA threshold and premium figures, and to clarify the 2026 tax bracket thresholds confirmed by IRS Rev. Proc. 2025-32.

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