If You Just Inherited an IRA, Read This

If you just inherited an IRA, the IRS could come a calling a decade later. 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. If you miss it, the penalty is brutal.

Here’s the rule. If you inherited an IRA from someone who died in 2020 or later and you are not their spouse, the account has to be empty by December 31 of the tenth year after death. That part many people know. What trips them up is the second layer: the IRS finalized regulations in 2025 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 10. Skipping those annual RMDs because you assumed “I have 10 years” is a mistake that costs real money.

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

Non-spouse heirs (adult children, siblings, friends, most trusts) are stuck with the 10-year clock. A surviving spouse has better options: you can roll the IRA into your own, treat it as your own, or keep it as an inherited IRA. Rolling it into your own account resets the RMD schedule to your age 73 and lets the money keep compounding.

How to Play It Without Handing the IRS Extra

1. Confirm the decedent’s RMD status. If they were past age 73, you need to do an annual RMD starting the year after death.
2. Retitle the account as an inherited IRA. Never roll a non-spouse inherited IRA into your own. That’s a taxable distribution of the whole balance.
3. Model your tax brackets. For 2026, the 24% bracket for single filers runs up to $201,775, and 32% kicks in above that ($403,550 for married couples filing jointly). Spread withdrawals across multiple years to stay under jumps.
4. Consider front-loading in lower-income years (early retirement, a sabbatical, a job change) instead of one giant year-10 withdrawal.
5. If Roth, still track the 10-year deadline, but let the money grow tax-free as long as possible before pulling it.

Taking the whole account as a lump sum can shove your income into the 37% top bracket, which starts at $640,600 for singles and $768,700 for joint filers in 2026. It can also spike your Medicare Part B and D premiums two years later through IRMAA surcharges. Miss a required annual RMD and you owe the 25% excise tax on the shortfall.

If you’re staring at a new inherited IRA statement, build the distribution schedule now, not in year nine. A single missed RMD costs more than most heirs realize.

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