Understanding The RMD Rules for Inherited IRAs

By Carla Fried and Benjamin Curry

Forbes Advisor

April 20, 2021 7:48 am ET

There’s more than $12 trillion currently sitting in individual retirement accounts (IRAs). Plenty of that IRA money will be spent by account owners during their retirement, but a significant portion is likely to be inherited in coming years.

If you inherit an IRA, you’ll need to follow certain rules carefully about how you manage and withdraw from your new account. Fail to draw down the account in a way the IRS approves, and you could be hit with a penalty equal to 50% of what the IRS says you should have withdrawn.

What Is an Inherited IRA?

An inherited IRA is an individual retirement account that you are willed upon the previous owner’s passing. Because an IRA is a tax-advantaged account, the IRS has certain regulations about how this inheritance can be used, including the timeline you have to withdraw funds from the account.

Every inheritor used to be able to “stretch” mandatory IRA withdrawals called required minimum distributions (RMDs) over their own lifetimes, which allowed them to minimize the amount of taxable income they might have in any given year. But 2019’s Setting Every Community Up for Retirement Enhancement Act (SECURE Act) threw a major curveball at non-spouse beneficiaries:

Beginning in 2020, the stretch option disappeared for most non-spouse IRA beneficiaries. Now, non-spouse beneficiaries must withdraw the entire value of an inherited IRA within 10 years—although there are some exceptions, which we’ll cover below.

According to the SECURE Act, there is no annual RMD in each of those 10 years, just a requirement that at the end of the 10th year after the original owner died, the account must be empty. If not, the IRS will pocket a 50% penalty tax on what remains.

“The 10-year rule can mean some people who inherit a big IRA can see their tax rates rise,” says Ben Fuchs, a certified financial planner (CFP) in West Hartford, Conn. (Those who inherit Roth IRAs of any size, however, will almost always not see any change in their income tax bracket because withdrawals from these are generally tax-free.)

For example, a 40-year-old non-spouse beneficiary who inherited a $1 million traditional IRA when the stretch option was allowed would have been required to withdraw a $23,000 RMD the first year they held the account, based on life expectancy, says Fuchs. Under the new 10-year rule, a beneficiary who spread out withdrawals over 10 years would take a $100,000 withdrawal in the first year.

As you can see, if you’re a non-spouse beneficiary, this change could have major implications for your income tax rate if you inherited a traditional IRA. “Under the 10-year rule, it’s easy to see someone’s tax rate jumping from 12% to 22%, or from 22% to 32%,” Fuchs says.

Inherited IRA Rules for Spouses

Spouses who inherit traditional IRAs can continue to use the stretch IRA strategy, basing withdrawals on IRS life expectancy RMD calculations. (Remember, there are no RMDs with a Roth IRA.)

Brian Kennedy, president of KCA Wealth Management in Camp Hill, Penn., says a mistake people often make when they inherit an IRA is to not fulfill any RMD owed by the deceased in the year they die. If the deceased was at least 72, there’s going to be an RMD due on any money they held in a traditional IRA.

“If the deceased was taking RMDs, but hadn’t yet done it in the year they die, the beneficiary must take care of it, or you can get hit with the 50% penalty,” says Kennedy.

Once the RMD liability of the deceased is sorted out, a spouse has a few options for taking control of the inherited IRA.

  • Remain a beneficiary of the IRA. The account is treated as an inherited IRA and future RMDs are based on the age of the deceased original owner. If the deceased was not yet 72, and the surviving spouse is, this option can delay the need to begin taking RMDs.
  • Become the owner of the IRA. Future RMDs are based on the life expectancy of the new owner, and do not need to begin until age 72. If the surviving spouse is younger than the deceased spouse, and is not yet 72, this option delays when RMDs must begin. That said, if the surviving spouse wants to take withdrawals from a traditional IRA before age 59 ½, the withdrawal will be taxed as ordinary income, but the typical 10% early withdrawal penalty will not be charged.
  • Roll over the money into an existing IRA. RMDs will then be based on the age of the owner. But if the inheriting spouse wants to make withdrawals before age 59 ½, the 10% early withdrawal penalty will be levied—in addition to any applicable income tax.

Inherited IRA Rules for Non-Spouses

For non-spouses, the first step is always to fulfill any RMD owed by the deceased in the year of death. From there, a non-spouse who inherits an IRA will need to move the money into a special “inherited IRA,” also known as a beneficiary IRA. If there are multiple beneficiaries, each individual must set up their own inherited IRA.

You can’t contribute new money to an inherited IRA account—and you likely will have just 10 years to empty the account.

The general rule for non-spouse beneficiaries is that you must withdraw all the money from the account by December 31 of the 10th year after the original owner died. That’s worth some quick unpacking: The IRS’ 10-year inherited IRA clock starts in the year after the owner dies. That essentially means you have 11 years to drain the account, if you choose to start taking money out in the year the original owner died.

During the 10-year period, the beneficiary isn’t required to take annual RMDs. All the IRS cares about is that there is not a penny left at the end. You could take it all at once, parse it out annually or take the entire chunk the day before you hit the 10-year deadline. For the record, that’s not likely a smart approach, at least for traditional IRAs as it will likely bump you into a higher tax bracket.

Note: There are some non-spouse beneficiaries who are not held to this new 10-year rule.

  • Minor children. Annual RMDs based on the child’s age can be taken until the child reaches the “age of majority” in their state. That’s typically age 18. At that point, any remaining money in the IRA will need to be withdrawn according to the 10-year rule. This exception only applies to children, not grandchildren.
  • Disabled or chronically ill individuals. If the beneficiary meets the IRS definition of disabled or chronically ill, annual RMDs can be based on the life expectancy of the beneficiary.
  • Individuals within 10 years of age of the deceased. Withdrawals from the IRA can be annual RMDs based on the life expectancy of the beneficiary.

The 5-Year Rule for Inherited IRAs

There are two five-year rules to be aware of when it comes to inherited IRAs:

  • No beneficiary named. If the deceased owner didn’t set up beneficiaries, the estate will need to withdraw all the money from the IRA within five years.
  • A Roth IRA that’s less than five years old. While Roth IRAs are not subject to RMDs, they are beholden to their own five-year rule. With an inherited Roth IRA, contributions the original owner made can be withdrawn at any time without any tax due. But if the account is less than five years old, you don’t want to touch the earnings just yet, as they will be taxed as ordinary income. Once the account reaches the five-year mark from when the original owner opened it, gains can be withdrawn tax free.

How to Calculate RMDs for Inherited IRAs

If you are eligible to take RMDs, rather than being held to the 10-year rule, your annual withdrawals are determined by an IRS formula based on life expectancy.

Spouses who roll over an IRA into their own account, will use the IRS Uniform Lifetime Table to calculate their RMDs. If the spouse becomes the owner of the IRA, the IRS Single Life Expectancy Table is used. If the spouse remains a beneficiary of the IRA, the IRS Single Life Expectancy Table is also used, but the deceased’s age is used for calculations instead of the inheriting spouse. Non-spouse beneficiaries use the IRS Single Life Table.

How to Manage Taxes on an Inherited IRA

All withdrawals from a traditional inherited IRA will be taxed as ordinary income. If you inherit a sizable traditional IRA, you may want to huddle with a trusted tax advisor to scope out a strategy for managing the tax hit. That will likely involve taking withdrawals over multiple years (within your 10-year window) to avoid bumping you into much higher tax brackets.

If you have the cash available to make a big charitable donation in a single year, you could use that tax deduction to help offset the additional tax owed on an inherited IRA distribution, though this only works if you file an itemized tax return.

Or if you are at least 70 ½ you can make a qualified charitable donation (QCD) of up to $100,000 per year directly from the inherited IRA, which will reduce the account balance of the IRA without triggering any income tax.

One final word on Roth IRAs: Since there are no RMDs and withdrawals aren’t subject to tax in nearly all cases (watch out for that five-year rule), a non-spouse who inherits a Roth IRA might consider waiting until the last possible minute to empty the account. If you don’t need the money to cover current expenses, that effectively gives you another 10 years of tax-free growth before having to move the money into a taxable account.

Click Here to view this article on

All withdrawals from a traditional inherited IRA will be taxed as ordinary income. If you inherit a sizable traditional IRA, you may want to huddle with a trusted tax advisor to scope out a strategy for managing the tax hit. That will likely involve taking withdrawals over multiple years (within your 10-year window) to avoid bumping you into much higher tax brackets.

If you have the cash available to make a big charitable donation in a single year, you could use that tax deduction to help offset the additional tax owed on an inherited IRA distribution, though this only works if you file an itemized tax return.

Or if you are at least 70 ½ you can make a qualified charitable donation (QCD) of up to $100,000 per year directly from the inherited IRA, which will reduce the account balance of the IRA without triggering any income tax.

One final word on Roth IRAs: Since there are no RMDs and withdrawals aren’t subject to tax in nearly all cases (watch out for that five-year rule), a non-spouse who inherits a Roth IRA might consider waiting until the last possible minute to empty the account. If you don’t need the money to cover current expenses, that effectively gives you another 10 years of tax-free growth before having to move the money into a taxable account.

Click here to view the article on Forbes.

Contact Us:

433 South Main Street, Suite 308
West Hartford, CT 06110


134 Main Street Extension, Suite A
Middletown, CT 06457


Email: info@ffncl.com
Phone: (860) 461-1709
Toll Free (877) 940-1009

Fax: (860) 904-6729

M-F: 8:30am-5:00pm
S-S: Closed

If you would like to schedule a no-obligation, complimentary consultation with us, please click the button below. We look forward to speaking with you soon!

SCHEDULE A CONSULTATION