In long-awaited final rules, the IRS finally clarified the controversial 10-year rule for inherited individual retirement accounts (IRAs). The guidance, set to take effect this year, addresses a key question that has puzzled many advisors and beneficiaries since the passage of the original SECURE Act more than five years ago.
Here's more of what you should know.
New rules for inherited IRAs
A big question, now answered, had been whether non-spouse beneficiaries had to take annual required minimum distributions (RMDs) during the 10 years following the original account holder's death, or if they could wait and withdraw the entire amount at the end of the decade.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
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.
In the final rules, the IRS confirms that most beneficiaries must take annual RMDs throughout the 10 years, with the account fully depleted by the end of the tenth year.
This applies specifically to cases where the original account holder had already started taking RMDs before they passed away.
Exceptions to the rules
However, the regulations do provide some flexibility regarding annual distributions.
- If the original account holder passed away before reaching their RMD age, beneficiaries have more leeway in timing their withdrawals within the 10-year window.
- But the account must still be emptied by the end of the 10 years.
It's also important to note that rules vary for certain beneficiaries. For example, the following "eligible designated beneficiaries" are generally exempt from the 10-year rule:
- Surviving spouses
- Minor children (under age 21)
- Disabled or chronically ill individuals
- Beneficiaries not more than 10 years younger than the deceased
Penalty relief for missed RMDs
While the regulations were finalized last year, they are supposed to take effect this year, 2025. However, for those subject to the new rules, the IRS knows the transition has been confusing and has provided a grace period. As Kiplinger reported, for 2021 through 2024, affected beneficiaries didn't have to take RMDs.
For more information, see IRS Delays IRA RMDs.
Inherited IRA: Bottom Line
For many beneficiaries of inherited IRAs, the era of stretching withdrawals over a lifetime is essentially over. As a result, if you are a beneficiary subject to the annual RMD rule, plan how to manage inherited IRA funds over a shorter timeframe, balancing tax implications with your financial needs and goals.
Stay informed and adjust your financial planning accordingly if you are a current retirement account holder or potential beneficiary. Also, given the complexity of these changes, it’s a good idea to consult with a trusted financial advisor or tax professional to help review your estate and tax plans and beneficiary designations.
Related
- Inherited an IRA? Five Things Every Beneficiary Should Know
- Roth 401(k) Rule Changes for 2025
- 401(k) Early Withdrawals: New Rules for Emergencies
-
Quiz: How Well Do You Know Delaware Statutory Trusts?Quiz Real estate investing pro Daniel Goodwin recently wrote about Delaware statutory trusts for Adviser Intel. Find out if you understand how DSTs work.
-
S&P 500 Snaps Losing Streak Ahead of Nvidia Earnings: Stock Market TodayThe Dow Jones Industrial Average also closed higher for the first time in five days, while the Nasdaq Composite notched a win too.
-
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.
-
Another State Bans Capital Gains Taxes: Will More Follow in 2026?Capital Gains A constitutional amendment blocking future taxes on realized and unrealized capital could raise interesting questions for other states.
-
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.
-
Emergency Tax Bill Ends $6,000 Senior Deduction and Tip, Overtime Tax Breaks in D.C.Tax Law Here’s how state tax conformity rules could immediately raise your income tax liability.
-
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.
-
When to Hire a Tax Pro: The Age Most Americans Switch to a CPATax Tips Taxpayers may outsource their financial stress by a specific age. Find out when you should hire a tax preparer.
