Inherited an IRA? The 10-Year Rule Just Got Teeth in 2026

Maria's mother died in March 2022. Two weeks later, a Fidelity envelope landed in her mailbox: a single sheet of paper saying she had just inherited $387,000 in a traditional IRA. She did what most people in her position do. She opened an inherited IRA account in her own name, transferred the money over, and let it sit. No one from the IRS called. No advisor flagged anything. For three years she didn't touch a dollar of it.

Maria isn't alone. Cerulli Associates projects roughly $124 trillion in U.S. wealth will change hands by 2048, with about $100 trillion of that coming from Boomers and the Silent Generation. A meaningful slice of that money sits inside traditional IRAs and 401(k)s, and the rules that govern what happens to those accounts when the owner dies got rewritten by the SECURE Act in 2019, refined again under SECURE 2.0 in 2022, and locked into final IRS regulations in July 2024.

Most non-spouse beneficiaries don't know the rules changed. The ones who do mostly remember "you have 10 years to empty the account" and figure they can deal with it in year 9. Both positions are now expensive in a specific way.

What the 10-Year Rule Actually Says

If you inherited an IRA from a non-spouse on or after January 1, 2020, you're almost certainly subject to what's now known as the 10-year rule. The original SECURE Act killed the old "stretch IRA," which had let beneficiaries spread distributions over their own life expectancy. In its place, Congress required most non-spouse beneficiaries to fully drain the inherited account by December 31 of the tenth calendar year after the original owner's death.

Inherit in 2024? The account has to be empty by December 31, 2034.

That part most beneficiaries grasp at a high level. The part they missed is what happens during years 1 through 9.

The Wrinkle Everyone Missed: Annual RMDs Inside the 10-Year Window

When SECURE first passed, the IRS's early guidance suggested beneficiaries could let the account compound untouched and just drain the whole thing in year 10. That reading lasted about two years. In 2022, the IRS issued proposed regulations saying that if the original owner had already started their own required minimum distributions (RMDs) before they died, the beneficiary has to keep taking annual RMDs in years 1 through 9 and empty the account in year 10.

This caught a lot of people off guard, including the IRS itself, which is why the agency issued a series of waiver notices culminating in Notice 2024-35, forgiving any missed beneficiary RMDs for tax years 2021, 2022, 2023, and 2024.

Tax year 2025 is the year the waivers ended. Final regulations issued on July 18, 2024 confirmed the annual RMD requirement and pulled the grace period off the table going forward.

If your parent (or any other relative) was already past their RMD age when they died and you've inherited their IRA since 2020, you needed to start taking annual RMDs in 2025. If you didn't, your 2025 tax filing is missing a required step.

Who's Exempt: Eligible Designated Beneficiaries

A small group of beneficiaries gets to skip the 10-year rule entirely. The IRS calls them "eligible designated beneficiaries" and the list is short:

A surviving spouse. A minor child of the deceased (until they reach the age of majority, after which the 10-year clock starts). A beneficiary who is chronically ill or disabled under the IRS definition. And anyone who is not more than 10 years younger than the deceased owner.

Those categories can still use the old stretch IRA rules and take distributions over their own life expectancy. For everyone else, including adult children, siblings, friends, and anyone more than 10 years younger, the 10-year clock applies.

Spouses are a special case worth flagging. A surviving spouse can either treat the inherited IRA as their own (combining it with any existing IRA, no special 10-year rule), or treat it as an inherited IRA with stretch privileges. The math usually favors treating it as their own.

The Penalty Has Teeth Again

For decades the missed-RMD penalty was a brutal 50% of the shortfall. SECURE 2.0 cut it to 25%, and to 10% if you self-correct within two years by withdrawing the missed amount and filing Form 5329. That sounds gentler until you do the math on an inherited IRA.

Say you inherited $400,000 from a parent in 2022 who was already taking their own RMDs. Your 2025 RMD, based on the IRS Single Life Expectancy Table factor of roughly 24 years for a 60-year-old beneficiary, would have been around $16,700. Skip it entirely, do nothing, and the IRS can assess a 25% excise tax on the shortfall: $4,175. Correct it within two years and the penalty drops to 10%, or $1,670. Either way, you still owe ordinary income tax on the distribution you eventually take.

The penalty itself is annoying. The bigger problem is what skipping years 1 through 9 does to your tax bill in year 10.

The Year-10 Tax Bomb

Run the math. Say your starting balance is $400,000 and it earns 7% a year inside the inherited IRA. If you take nothing for nine years, the account grows to about $735,000. In year 10 you have to empty it.

If you're married filing jointly and your other household income is $150,000, that $735,000 lump lands on top of everything else. The IRS's 2026 brackets for MFJ have the 22% rate running from $100,800 to $211,400, the 24% rate from there to $403,550, the 32% rate up to $512,450, the 35% rate up to $768,700, and the 37% rate above. A back-loaded distribution like this pushes most of the inherited dollars into the 32% and 35% brackets and the top slice into 37%. The federal income tax on the inherited money alone can clear $230,000.

Spread the same $735,000 over the full 10 years at roughly $73,500 a year, and your household income each year stays around $223,500, sitting safely in the 24% bracket. The total federal tax on the inherited money drops to roughly $176,000. That's a swing of more than $50,000 in pure tax timing, before you've made a single investment decision.

A small change in when you take the money produces a large change in how much you keep.

Smart Distribution Strategy

There's no single right answer here. The right cadence depends on what your income looks like across the next decade.

If you expect your income to drop in the next few years (planned retirement, parental leave, a sabbatical, business sale), back-loading distributions into those low-income years can save real money. You're moving the income to a year when your marginal rate is lower.

If your income is steady and you're in your peak earning years, the most defensible default is roughly level annual distributions. You aren't trying to optimize for any one year, you're keeping the inherited dollars from ever pushing you into a higher bracket.

If you have charitable intent, qualified charitable distributions don't work for non-spouse beneficiaries under age 70½, but you can still pair each year's inherited IRA distribution with a same-year donation, donor-advised fund contribution, or charitable remainder trust that offsets the income.

If the inherited account is Roth, the math changes completely. Roth IRA inherited distributions are tax-free (the account has to be at least five years old at the original owner's death, which almost all are), so the only question is whether to let the tax-free growth compound for the full 10 years and take the lump in year 10. For most Roth inheritors, that's exactly the move. Roth IRAs still have to be emptied by year 10, but there are no annual RMDs required during the window.

Three Mistakes That Keep Showing Up

The first is the one Maria made: assuming silence means everything's fine. Your IRA custodian won't call you about missed RMDs on an inherited account. They send a 1099-R for whatever you withdrew. If you withdrew nothing, you'll get nothing, and the IRS will catch the missed RMD only when and if it audits.

The second is rolling an inherited IRA into your own IRA. Non-spouse beneficiaries can't do that. The only valid move is a trustee-to-trustee transfer into an account titled as an inherited IRA with the deceased's name still on it (for example, "Maria Smith, beneficiary of Jane Smith, deceased"). Rolling the money into your own IRA triggers immediate taxation on the full balance and disqualifies the account from inherited IRA treatment.

The third is naming an estate or a non-qualifying trust as the beneficiary in the first place. When that happens, the account often becomes subject to a 5-year payout rule instead of 10, and the planning flexibility evaporates. If you're the IRA owner reading this, name living humans on the beneficiary form. Update it after divorces and deaths.

The Bottom Line

If you've inherited an IRA from a non-spouse since 2020, three concrete moves to make in the next two weeks:

1. Pull your inherited IRA statement and confirm two dates. When did the original owner die? Had they reached their RMD age (currently 73 under SECURE 2.0) before they died? Those two answers determine whether you owed an RMD in 2025 and whether you owe one in 2026.

2. If you owed a 2025 RMD and missed it, fix it now. Take the missed distribution this calendar year, file Form 5329 with a reasonable-cause statement, and reduce the penalty from 25% to 10%. The IRS has historically been willing to waive even the 10% if the cause is documented and the missed RMD has been corrected promptly.

3. Build a 10-year distribution schedule, not a 10-year deferral plan. A spreadsheet that maps your projected ordinary income against your inherited IRA balance for each remaining year of the 10-year window will save you more in taxes than any single investment decision you'll make this decade. Most fee-only financial planners will build one for a few hundred dollars; a CPA can fold it into your annual tax planning.

An inheritance lands in your life at exactly the moment you have the least bandwidth to think about it. The kindest thing you can do for the person who left it to you is spend one focused afternoon with the paperwork. The rules just got real.