Inherit a $280,000 Roth IRA at 55 and the IRS Will Give You 10 Years to Empty It. The Smart Move Will Be Not Touching It Until Day 3,649.
She inherited a six-figure Roth IRA and assumed tax-free meant she could cash it out whenever she wanted. The IRS disagreed, and the difference between her instinct and the smarter move ran to tens of thousands of dollars.
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A 55-year-old marketing director lost her mother in early 2026. A few weeks after the funeral, the brokerage called to tell her she was the only beneficiary of her mother’s Roth IRA, worth $280,000.
She planned to cash it out and pay off the house. Roth money comes out tax-free, so she thought the timing didn’t matter. Taking it all at once would have cost her more than $53,000 over the next decade.
Ten Years With No Required Withdrawals
The SECURE Act changed Internal Revenue Code Section 401(a)(9), which put most adult children who inherit an IRA under the 10-year rule. IRS Publication 590-B says the account must be fully distributed by December 31 of the year containing the 10th anniversary of the owner’s death. Because her mother died in 2026, her deadline is December 31, 2036.
She has no way out of the 10-year rule. Lifetime stretch payouts are reserved for eligible designated beneficiaries: the owner’s surviving spouse, the owner’s minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner. A daughter a full generation younger fits none of those categories.
Roth accounts work differently from traditional IRAs here. Under Section 408A(c)(5), Roth owners are not subject to RMDs while they’re alive, so the IRS treats a Roth owner as having died before the required beginning date. Publication 590-B spells out what that means: “no distribution is required for any year before the 10th year.” The final Section 401(a)(9) regulations, which reflect both the SECURE Act and SECURE 2.0, apply for calendar years beginning on or after January 1, 2025.
Earnings come out tax-free under Section 408A(d) once the Roth passes its five-year mark. That clock started with her mother’s first contribution. It stopped mattering long ago if at least 5 years have passed since the original owner opened the account.
Waiting Is Worth $53,421
The math below assumes a 5.28% annual return, the 10-Year Treasury yield on October 7, 2026. That yield is only a benchmark. Stocks could return more or less.
Path one: she leaves the account alone. At that rate, $280,000 grows to about $468,400 in ten years. That includes roughly $188,400 of growth she never pays income tax on.
Path two: she empties it in year one. The withdrawal is tax-free, but the money no longer benefits from the Roth IRA’s tax-free growth. If she invests the $280,000 in a regular savings or investment account earning 5.28% annually, she would earn $14,784 in the first year. Assuming she pays a 24% federal tax rate on that interest, she would owe about $3,548 in federal income tax, leaving $11,236 to reinvest. Assuming the same return and tax rate each year, her money would grow to about $414,979.
Patience is worth $53,421. Higher returns make that gap bigger, because more growth means more tax in the taxable account.
She can still get at the money in an emergency. Section 72(t)(1) imposes a 10% additional tax on early withdrawals, but Section 72(t)(2)(A)(ii) exempts money paid to a beneficiary after the owner’s death. Each dollar she takes out early simply stops growing tax-free.
Day 3,649 Is Safer Than December 31
Waiting until the last possible day is risky. Custodians run short-staffed over the holidays, and a request submitted on December 31 can post in January. Under Publication 590-B, anything left in the account after the deadline is subject to the excise tax.
Day 3,649 falls in the final days of December 2036. Taking then gets nearly all of the tax-free growth while leaving the custodian time to process the paperwork.
Five Moves to Make Before the Clock Runs Out
- Retitle the account right. It should become an inherited Roth IRA in her mother’s name for her benefit. Only the spouse who is the sole beneficiary can elect to be treated as the IRA owner. Rolling the money into her own Roth is not allowed.
- Confirm the five-year clock. Ask the custodian for the date of her mother’s first Roth contribution, which appears on the old Form 5498 records.
- Name her own beneficiary on the inherited account. If she dies before 2036, her heirs generally still have to empty the account within 10 years after the owner’s death.
- Get the cutoff in writing. Ask the custodian for its year-end processing deadline and set a calendar reminder for early December 2036.
- Invest for a ten-year horizon. Leaving the money in cash wipes out the advantage of waiting.
A CPA can check the bracket math against her own return.
On a $280,000 inherited Roth, cashing out early costs about $53,421. Waiting until the end of the window lets her keep it.
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
