Inheriting an IRA can be a financial blessing, but also a source of confusion when it comes to understanding your responsibilities as a beneficiary. The rules for handling an Inherited IRA can vary widely depending on whether you’re a spouse or non-spouse IRA beneficiary, when the original account owner passed away, and what type of IRA you inherited (traditional or Roth).

In this guide, we’ll walk through the process of handling an Inherited IRA step-by-step and unpack everything from IRA beneficiary rules to tax on inherited IRAs, so you can feel confident navigating your next steps and aligning them with your overall retirement planning strategy.

What is an Inherited IRA?

An Inherited IRA is an account that is left to a beneficiary after the death of the original IRA owner. Depending on the relationship to the deceased and the timing of the inheritance, you will face different rules related to required minimum distributions (RMDs), timelines for withdrawals, and taxes.

The Impact of the SECURE Act on Inherited IRAs

The SECURE Act, implemented in 2020, significantly altered the IRA rules for beneficiaries, especially non-spouse IRA beneficiaries. Before the Act, beneficiaries could take RMDs over their life expectancy—a strategy known as the Stretch IRA. The Act replaced this option with a strict 10-year rule for inherited IRAs, which states that the entire balance must be withdrawn within 10 years of the original account owner’s death.

Step 1: Determine Your Beneficiary Type

1. Spouse Beneficiary

If you’re the spouse of the deceased IRA owner, you have two options:

• Roll the Inherited IRA into your own IRA: This strategy allows you to treat the inherited funds as if they were yours, delaying RMDs until age 73 or 75, depending on your birth year.
• Keep the funds in an Inherited IRA: This may be beneficial if you’re under 59 ½ and need access to the funds without early withdrawal penalties.

2. Non-Spouse Beneficiary

This includes children, siblings, friends, and other individuals. Under current IRA beneficiary rules, most non-spouse IRA beneficiaries must:

• Follow the 10-year rule (withdraw the entire account within 10 years).
• Take annual RMDs if the original account owner was already taking them.

Step 2: Understand the Key Rules Based on Inheritance Year

If the IRA was inherited before 2020:

You’re likely under the Stretch IRA rules, meaning:

• Annual RMDs based on your own life expectancy (using the IRS’s single life expectancy table).
• Spreads distributions out over decades, minimizing annual tax impact.

If the IRA was inherited in 2020 or later:

You’re subject to the SECURE Act’s 10-year rule. Here’s how it works:

If the original owner was not taking RMDs:

• You do not have to take annual RMDs.
• But you must withdraw the full balance by December 31 of the 10th year following the year of death.

If the original owner was taking RMDs:

• You must continue taking annual RMDs.
• The account must still be emptied by the end of year 10.

Step 3: Calculate Your Inherited IRA RMDs

If you’re required to take RMDs, here’s how to calculate them:

1. Use the prior year-end balance (e.g., 12/31/2024 value for 2025 RMDs).
2. Find your life expectancy factor using the IRS’s Single Life Expectancy Table.
3. Divide the year-end account balance by the factor.
4. For each subsequent year, reduce the factor by one.

Example:

• Account balance = $50,000
• Age = 61 (life expectancy factor = 26.2)
• RMD = $50,000 ÷ 26.2 = ~$1,908

Even if you’re not required to take distributions under the 10-year rule, strategically spreading withdrawals over 10 years can reduce the tax on inherited IRAs.

Step 4: Plan Strategically Around Taxes

Inherited IRAs are fully taxable as ordinary income (unless it’s a Roth IRA). If you inherit a large account, taking all the money out in year 10 could push you into a much higher tax bracket.

That’s why financial planning for retirement is so critical—especially for managing large withdrawals and minimizing taxes.

Step 5: Consider Exceptions to the 10-Year Rule

Some beneficiaries may qualify for exceptions to the 10-year rule. These include:

• Surviving spouses
• Disabled or chronically ill beneficiaries
• Minor children (until age 21)
• Individuals not more than 10 years younger than the deceased

If you fall into one of these categories, you may still be eligible to follow Stretch IRA rules.

Step 6: Special Case – Roth Inherited IRA

A Roth Inherited IRA operates differently:

• No RMDs are required during the 10-year period.
• You still must empty the account by the end of year 10.
• Withdrawals are tax-free, provided the Roth was open for 5+ years.

Planning tip:

Let the Roth Inherited IRA grow tax-free for as long as possible and take the entire distribution in year 10. This could result in significant tax-free growth and maximize your inheritance.

Step 7: Add Inherited IRA to Your Retirement Plan

When you inherit an IRA, adding the account into your retirement plan is a good strategic move for your peace of mind in the future. You’ll want to consider:

• Your current and future income
• Existing retirement assets
• Tax brackets and planning windows (e.g., retirement gap years)
• Legacy and estate planning goals

Working with a financial planner ensures your inherited IRA withdrawals are timed for maximum tax efficiency, and that they complement your long-term retirement plan.

Final Thoughts: Inherited IRAs Don’t Have to Be Confusing

Whether you’re dealing with traditional or Roth inherited IRAs, understanding the rules will help you:

• Avoid penalties
• Minimize taxes
• Make the most of your inheritance

Navigating Inherited IRA RMD rules and the 10-year rule inherited IRA timeline isn’t simple, but with a step-by-step approach and professional guidance, you can stay on track.

If you’ve inherited an IRA and you’re unsure of your obligations or how it fits into your retirement goals, don’t go it alone.

Circumstances surrounding acquiring an Inherited IRA are typically not joyful. The funds maybe helpful immediately or help set you up for a successful future, but initially, you may be juggling many emotions on top of a long “to-do” list. This guide is a great tool to help gain basic knowledge in understanding this process, and we offer a complimentary 15 minute phone call to help you with additional questions.