Navigating inherited individual retirement accounts (IRAs) has become increasingly challenging for beneficiaries.
Recent legislative changes and regulatory updates have introduced new and important tax considerations — especially recent rule changes and delays involving required minimum distributions (RMDs).
These changes have reshaped the financial and tax-planning landscape for many who inherit retirement accounts.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Additionally, the IRS unveiled long-awaited final rules concerning inherited IRAs. Although these regulations were expected and take effect this year, 2025, they cement key aspects involving RMDs that will impact many beneficiaries. (More on that below).
The clarity in these rules offers opportunities (and maybe some potential pitfalls) for heirs to keep in mind.
Being aware of these rule changes will help you make informed decisions, optimize your inherited assets and hopefully, avoid costly tax mistakes.
Here are five essential tax aspects every IRA beneficiary should know.
1. Inherited IRA tax rules have changed in recent years
If you inherit an IRA or have any other retirement plan account, it's important to be aware of the SECURE 2.0 Act.
SECURE 2.0 is legislation that significantly changed U.S. retirement account rules. These changes directly impact retirement savings plans, including 401(k), 403(b), IRA, Roth accounts and, in some cases, associated tax benefits.
- For example, the minimum age for required minimum distribution (RMD) was raised to 73 under the SECURE 2.0 Act. (Eventually, the RMD age will move to 75.)
Additionally, the SECURE Act of 2019 (which served as a basis for SECURE 2.0) has resulted in many beneficiaries being unable to extend inherited IRA distributions through their lifetimes. (More on that later.)
2. No more ‘stretch IRA’ strategy for many beneficiaries
Before SECURE 2.0, beneficiaries could use a "stretch" strategy with inherited IRA distributions, potentially allowing for tax-deferred growth over a more extended period. However, a 10-year rule now applies to many beneficiaries of inherited IRAs.
- Due to the original SECURE Act, most beneficiaries can no longer “stretch” distributions over their lifetimes. Instead, many non-spouse beneficiaries who inherited IRAs on or after January 1, 2020, must empty the account within 10 years of the account owner’s death.
- The inherited IRA 10-year rule has raised concerns about annual RMDs for unsuspecting beneficiaries.
- Update: IRS final regulations on inherited IRAs confirm that beginning this year, 2025, many beneficiaries will face annual required distributions during the 10-year period.
Eligible designated beneficiary categories
For purposes of SECURE, the following are the main categories of eligible designated beneficiaries (EDBs), who generally benefit from more flexibility in how they withdraw funds from an inherited IRA.
- Surviving spouse: Can treat the inherited IRA as their own or take distributions based on their life expectancy
- Minor children: Applies to children under the age of majority. Once they reach adulthood, they must follow the 10-year rule
- Disabled individuals: Must meet IRS criteria for disability, being unable to engage in substantial gainful activity due to a long-term impairment
- Chronically ill individuals: Those who cannot perform at least two activities of daily living without assistance or require supervision due to severe cognitive impairment
- Individuals not more than 10 years younger: Typically, siblings, friends or other individual beneficiaries close in age to the account owner
Individual circumstances vary, so consult with a trusted tax adviser to determine how to time your distributions strategically while complying with the 10-year rule if it applies to you.
Keep in mind that the IRS has delayed some rules and penalties for certain inherited IRAs.
3. Annual withdrawals are required for some beneficiaries
Under the final IRS rules, it's not as simple for some as waiting until the 10th year to withdraw all funds in the inherited IRA account.
For many heirs, the IRS now requires annual withdrawals to be made throughout the 10-year period. (The RMD amount each year can vary based on several factors, including the beneficiary's age, relationship to the deceased and the value of the inherited account.)
For example, rules differ depending on whether the original account owner, before they passed away, had begun taking RMDs. If they took required distributions before they died, the beneficiary usually needs to continue taking annual distributions while complying with the 10-year rule (if applicable).
For more information, see IRS Ends Inherited IRA Confusion: Annual RMDs Required for Many Beneficiaries.
4. Inherited IRA penalties: The IRS is waiving some
Understanding the tax treatment of distributions and inherited IRA RMD rules is crucial for IRA beneficiaries.
- Inherited IRAs are generally subject to required minimum distributions. Rules vary when the beneficiary qualifies as an “eligible designated beneficiary” (e.g., surviving spouses, minor children, disabled individuals and individuals who are chronically ill).
- RMD rules, including timing and amounts, for inherited IRAs are largely tied to the date of the original account holder’s death.
It’s important to note that the IRS had delayed implementation of the final rules governing inherited IRA RMDs — until this year, 2025. That meant that some beneficiaries of inherited IRAs had more time to adapt to distribution requirements.
The IRS said it's waiving penalties for RMDs missed in 2024 from IRAs inherited in 2023, in which the deceased owner was already subject to RMDs. (With previous IRS relief, penalties are waived for missed RMDs from specific IRAs inherited in 2020, 2021, 2022 and 2023.)
However, given all the changes and confusion, it’s a good idea for inherited IRA beneficiaries to consult a tax adviser to determine the correct RMD schedule.
5. Navigating inherited IRA rules: Individual details matter
With inherited IRAs, the type of account and specifics involving the account holder and the beneficiary matter when determining tax liability and strategy.
If you inherited an IRA, knowing these details can help you plan for distributions' tax consequences and choose the best strategy for your situation.
- Consult a qualified tax adviser or financial planner to navigate the specific inherited IRA rules and tax implications.
Inheritance and tax laws can be complex, and individual circumstances vary, so seeking professional guidance can help beneficiaries make informed decisions.
Read More
-
3 Ways to Stretch the 2026 Social Security COLA For Your BudgetThree steps retirees can take to stretch the Social Security COLA to fit their budgets.
-
How to Keep Your Charitable Giving Momentum Going All YearInstead of treating charity like a year-end rush for tax breaks, consider using smart tools like DAFs and recurring grants for maximum impact all the year.
-
Uber Takes Aim at the Bottom Lines of Billboard LawyersUber has filed lawsuits and proposed a ballot initiative, in California, to curb settlements it claims are falsely inflated by some personal injury lawyers.
-
How Are I Bonds Taxed? 8 Common Situations to KnowBonds Series I U.S. savings bonds are a popular investment, but the federal income tax consequences are anything but straightforward.
-
Capital Gains Tax Quiz: How Well Do You Really Know IRS Investment Tax Rules?Quiz Take our capital gains tax quiz to test your investment taxes knowledge. Learn about loss rules, holding periods, and tax incentives that could impact your savings.
-
6 Tax Reasons to Convert Your IRA to a Roth (and When You Shouldn't)Retirement Taxes Here’s how converting your traditional retirement account to a Roth IRA can boost your nest egg — but avoid these costly scenarios.
-
Could Tax Savings Make a 50-Year Mortgage Worth It?Buying a Home The 50-year mortgage proposal by Trump aims to address the housing affordability crisis with lower monthly mortgage payments. But what does that mean for your taxes?
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
An HSA Sounds Great for Taxes: Here’s Why It Might Not Be Right for YouHealth Savings Even with the promise of ‘triple tax benefits,’ a health savings account might not be the best health plan option for everyone.
-
New RMD Rules: Can You Pass This Retirement Distributions Tax Quiz?Quiz Take our RMD quiz to test your retirement tax knowledge. Learn about RMD rules, IRS deadlines, and tax penalties that could shrink your savings.
-
10 Retirement Tax Plan Moves to Make Before December 31Retirement Taxes Proactively reviewing your health coverage, RMDs and IRAs can lower retirement taxes in 2025 and 2026. Here’s how.
