What is an Inherited IRA?

An inherited IRA, also called a beneficiary IRA, is the account a beneficiary uses to hold retirement assets passed on after the original owner’s death. You cannot simply merge an inherited IRA into your own unless you are the surviving spouse; for everyone else it must be retitled as an inherited account and drawn down on a required schedule.

The rules changed substantially under the SECURE Act and were finalized by the IRS in 2024. A great deal of older guidance still circulating describes the pre-2020 “stretch IRA” that no longer exists for most beneficiaries.

Who You Are Determines the Rules

Everything depends on which category you fall into.

Surviving spouses have the most flexibility. A spouse can treat the IRA as their own, roll it into their own IRA, or keep it as an inherited account. Treating it as their own means no distributions until their own required beginning date, which is age 73 for those born between 1951 and 1959 and age 75 for those born in 1960 or later.

Eligible designated beneficiaries (EDBs) may still stretch distributions over their life expectancy. This category covers a minor child of the original owner (until age 21, after which the 10-year clock starts), a disabled or chronically ill beneficiary, and any beneficiary not more than 10 years younger than the deceased.

Everyone else, including adult children, is subject to the 10-year rule.

Non-person beneficiaries such as estates, charities, and certain trusts generally must empty the account within five years if the owner died before their required beginning date.

The 10-Year Rule and Its Trap

Non-eligible beneficiaries must fully empty the account by December 31 of the tenth year after the owner’s death. What confuses people is whether annual withdrawals are required along the way, and the answer depends on one fact:

That second row is the one that catches people. The IRS finalized this interpretation in July 2024 and waived penalties for missed annual distributions from 2021 through 2024. Enforcement began in 2025, so a beneficiary who inherited from someone already taking RMDs and has been waiting to withdraw everything in year 10 may now be missing required distributions and facing an excise tax.

Even where annual RMDs are not required, emptying the account in a single year is rarely wise. Distributions from a traditional inherited IRA are ordinary income, so a $500,000 balance taken at once can push you into the highest brackets. Spreading withdrawals across the full ten years, weighted toward your lower-income years, usually keeps far more of it.

Tax Treatment

Traditional inherited IRA: distributions are taxed as ordinary income at your rate, not the original owner’s.

Roth inherited IRA: distributions are generally tax-free if the account was open at least five years. The 10-year emptying requirement still applies to non-eligible beneficiaries, but there is no annual RMD requirement regardless of when the owner died. Because the growth is tax-free, letting an inherited Roth compound for the full ten years before withdrawing is usually the better approach, the opposite of the traditional-IRA strategy.

You cannot convert an inherited IRA to a Roth unless you are a surviving spouse who has treated it as your own. Non-spouse beneficiaries must withdraw, pay the tax, and then invest the proceeds separately.

Planning the Drawdown

The ten-year window is a planning opportunity rather than just a deadline. Because you choose the timing within it, you can concentrate withdrawals in years when your other income is low: a gap year, a sabbatical, early retirement before Social Security begins, or a year with large deductions.

The interactions worth watching are how the additional income affects your bracket, whether it pushes you over the Net Investment Income Tax threshold, and if you are near 65, whether it raises Medicare IRMAA surcharges two years later. Modeling withdrawal timing across the full ten years in ProjectionLab’s tax optimizer shows which schedule keeps the most.

Related terms: beneficiary IRA covers the same account under its alternate name, and BDA is the label some custodians use on statements.

Frequently Asked Questions

What is the 10-year rule for inherited IRAs? Most non-spouse beneficiaries must empty the account by December 31 of the tenth year after the owner’s death. If the owner had already begun their own RMDs, annual distributions are also required in years one through nine.

Do I have to take money out every year? Only if the original owner died on or after their required beginning date. If they died before it, you can withdraw on any schedule as long as the account is empty by year 10.

How is an inherited IRA taxed? Traditional inherited IRA distributions are ordinary income taxed at your rate. Inherited Roth distributions are generally tax-free if the account was open at least five years.

Can I roll an inherited IRA into my own IRA? Only a surviving spouse can. Non-spouse beneficiaries must keep it as a separate inherited IRA; moving the money any other way is treated as a full taxable distribution.

What happens if I miss a required distribution? The excise tax is 25% of the shortfall, reduced to 10% if corrected within the correction window. The IRS waived this for missed annual distributions from 2021 through 2024, but enforcement resumed in 2025.

Should I take the money out early or wait until year 10? For a traditional inherited IRA, spreading withdrawals across the ten years usually reduces total tax by avoiding a single-year spike. For an inherited Roth, waiting maximizes tax-free growth.