Inherited IRA Planning: 10-Year Rule, Annual RMDs & Tax Strategy

The SECURE Act eliminated the "stretch IRA" for most beneficiaries. IRS final regulations (T.D. 10001, July 2024) confirmed that if the original owner was past their Required Beginning Date, non-spouse adult beneficiaries owe annual RMDs in years 1–9 — and the 4-year penalty waiver is over. Starting with the 2025 tax year, missed distributions trigger a 25% excise tax.¹ If you've inherited a large IRA, the planning decisions you make in the next few years will determine how much the government takes.

Step one: Are you an Eligible Designated Beneficiary?

The rules split beneficiaries into two categories with very different outcomes.

Most people who inherit a parent's IRA fall into the Non-EDB category. Grandchildren never qualify as EDB (they are not the minor child of the deceased).

Surviving spouse: three options

Spouses have the most flexibility and should model all three paths before deciding.

Option 1: Spousal rollover (treat as your own IRA)

Roll the inherited IRA into your own IRA. RMDs don't start until your required beginning date (April 1 after you turn 73 or 75, depending on birth year). You can still make contributions if you have earned income. This is the right move for most spouses who are younger than the deceased and don't need the money now — it maximizes tax deferral and eliminates inherited IRA restrictions.

Option 2: SECURE 2.0 spousal election (new in 2024)

Under SECURE 2.0, a surviving spouse can now elect to treat the inherited IRA as if they were the original owner for RMD purposes — without actually titling it as their own IRA. RMDs are calculated using the Uniform Lifetime Table (the same table the original owner used) rather than the surviving spouse's own age. For spouses who are older than the deceased, this can delay or reduce RMDs. For younger spouses, the spousal rollover typically wins.

Option 3: Keep as inherited IRA

Retain the account as an inherited spousal IRA. RMDs can be deferred until the later of: (a) December 31 of the year after the owner's death, or (b) December 31 of the year the owner would have turned 73 (or 75). Useful for short-term flexibility but rarely optimal long-term.

Non-EDB: the 10-year rule and mandatory annual RMDs

This is where most adult children who inherit a parent's IRA land — and where the most confusion and costly mistakes happen.

If the original owner died before their Required Beginning Date (RBD)

The RBD is April 1 of the year after the owner turned 73 (or 75 for those born 1960 or later). If your parent died before reaching their RBD, you have flexibility: no annual distributions are required in years 1–9. You can take nothing for 9 years and drain the account in year 10, or distribute evenly, or take more early and less later.

If the original owner died after their RBD (most IRAs inherited from parents in their 70s+)

You must take annual RMDs in years 1 through 9, calculated using the IRS Single Life Expectancy Table (Table I, Publication 590-B) based on your age in year 1, reduced by 1 for each subsequent year.² The full account must be distributed by December 31 of year 10.

The mandatory RMD sets a floor — you can always take more. In low-income years (career transition, sabbatical, early retirement), taking above the RMD can be smart: you use up cheaper bracket space now rather than cramming more into a high-income year later.

The 25% excise tax — a real cost now

The IRS waived penalties for missed annual inherited IRA RMDs from 2021 through 2024 while the regulations were being finalized. That waiver ended after the 2024 tax year. Starting with 2025, a missed annual RMD triggers a 25% excise tax on the amount that should have been distributed (reduced to 10% if you make a corrective distribution in the same year).¹

If you inherited a traditional IRA from a parent who was past their RBD and you haven't been taking annual RMDs since 2021, you may have significant corrective distributions and penalties to address. Talk to a CPA immediately — the IRS has provided specific procedures for catching up.

Inherited Roth IRA: 10 years of tax-free flexibility

If you inherited a Roth IRA, the rules are simpler and more favorable. Because Roth IRA owners never had to take RMDs during their lifetime, there is no "past RBD" concept — and therefore no mandatory annual distributions for beneficiaries.

Non-EDB beneficiaries of inherited Roth IRAs must distribute the full account by December 31 of year 10 — but can take any amount (including nothing) in years 1 through 9. The distributions are income-tax-free as long as the original owner met the 5-year rule.³

The optimal strategy: let the Roth grow for 9 years (tax-free compounding), take the entire balance in year 10 — also tax-free. A $500,000 inherited Roth growing at 6% becomes ~$845,000 by year 10 with zero federal tax on distribution. The math is dramatically different from a traditional inherited IRA.

Five planning strategies for $2M–$20M households

1. Spread distributions to stay out of the 37% bracket

If you have other income at or above $403,550 (MFJ), inherited IRA distributions will be taxed at 32–37%. In years with lower income — career change, early retirement, pre-Social Security, pre-RMD — inherited IRA distributions fill those brackets at lower rates. Map your income trajectory for all 10 years before defaulting to equal annual draws.

2. Coordinate with Roth conversion windows

If you also have your own traditional IRA, you may be planning Roth conversions. Inherited IRA distributions and Roth conversions compete for the same bracket space. In a year where you take $100K from an inherited IRA, that reduces how much you can Roth-convert at the same marginal rate. Plan both together — not separately. See: Roth Conversion Guide →

3. Watch IRMAA thresholds

Inherited IRA distributions count as MAGI for Medicare premium purposes. A $200K inherited IRA distribution in a year where your base MAGI is already $250K (MFJ) pushes you into IRMAA tier 3 — adding $4,440+/year per person in Medicare surcharges. If you're Medicare-eligible, model the IRMAA impact before deciding how much to pull in a given year. See: IRMAA Planning Guide →

4. QCDs from inherited IRAs (if you're 70½+)

Qualified Charitable Distributions (QCDs) can be made from inherited IRAs if the beneficiary is 70½ or older. The 2026 QCD limit is $111,000 per individual. A QCD counts toward the annual RMD requirement but does not show up in taxable income — the most tax-efficient way to give from an inherited IRA. If you're charitably inclined and over 70½, this strategy can eliminate tax on a significant portion of required distributions.

5. Consider a disclaimer if you don't need the money

If you're the primary beneficiary but don't need the inherited IRA assets, you can execute a qualified disclaimer within 9 months of the owner's death. This passes the IRA to the contingent beneficiary (often your children), who then start their own 10-year clock. If the contingent beneficiaries are younger and in lower tax brackets, the after-tax value of the inheritance is higher. Disclaimer planning requires immediate action after the owner's death — it cannot be undone or done late.

10-Year Inherited IRA Distribution Planner

Model your distribution schedule across all 10 years. For traditional IRAs where annual RMDs are required (owner past RBD), the calculator shows the mandatory minimum distribution each year. For Roth IRAs or cases without mandatory annual RMDs, compare three strategies: equal annual draws, front-loaded (take more early), and year-10 lump sum.

What makes inherited IRA planning hard

The 10-year window is short enough that every year's decision has compounding consequences. The correct annual distribution amount in year 3 depends on your projected income in years 4 through 10 — which depends on when you retire, how much you Roth-convert each year, when Social Security starts, and how your portfolio grows. No single-year calculation gets it right.

For a $1M–$5M inherited IRA, the difference between a well-planned distribution schedule and defaulting to equal draws or year-10 lump sum can be $100,000–$400,000 in avoidable federal tax over 10 years. A fee-only financial advisor who models these scenarios alongside your other planning levers — Roth conversions, IRMAA bands, Social Security timing — captures that value.

See also: Roth Conversion Strategy → | IRMAA Planning → | Estate Planning → | Family Gifting Strategies →

Sources

1. Grant Thornton — Final RMD Rules Retain 10-Year Rule for Inherited Retirement Accounts (T.D. 10001). Analysis of T.D. 10001 (July 19, 2024): annual RMDs in years 1–9 required for non-EDB beneficiaries when decedent died after RBD. Confirms 4-year penalty waiver (2021–2024) ended; 25% excise tax under IRC §4974 applies to 2025 and later tax years. 10% rate applies if corrective distribution made in same year.
2. IRS Publication 590-B (2025) — Distributions from Individual Retirement Arrangements. Table I: Single Life Expectancy factors for beneficiary RMDs (updated tables effective 2022 per T.D. 9930). Eligible Designated Beneficiary categories, spousal election mechanics, 10-year rule requirements, and QCD rules ($111,000 for 2026). Verified May 2026.
3. Charles Schwab — Inherited IRA Rules & SECURE Act 2.0 Changes. Inherited Roth IRA: no annual RMD requirement in years 1–9 (Roth owners never had lifetime RMDs, so no RBD concept applies); full distribution by end of year 10; distributions tax-free if original 5-year rule met. Non-EDB rules, spousal election mechanics, and minor-child EDB transition at age 21.
4. Kitces — New RMD Rules for Spousal Beneficiaries of Retirement Accounts (SECURE 2.0). Detailed analysis of the SECURE 2.0 spousal election: survivor can use decedent's Uniform Lifetime Table (ULT) for RMD calculations without executing a rollover. Compares rollover vs. inherited IRA vs. spousal election across different age combinations. Effective for distributions starting 2024. Values and rules verified May 2026.

Inherited IRA rules verified against T.D. 10001 (July 2024), IRS Publication 590-B (2025), and SECURE 2.0 provisions. 2026 federal tax brackets from IRS Rev. Proc. 2025-32. Single Life Expectancy Table factors from IRS Pub. 590-B Appendix B, Table I (updated 2022 tables, T.D. 9930). This page is educational — inherited IRA planning involves your specific family situation, income projection, and coordination with your estate plan. Work with a CPA and financial advisor.