Inherited IRAs May Require Annual RMDs and a 10-Year Payout Rule: What Beneficiaries Need to Know
Direct Answer
Yes, in certain inherited IRA situations, a beneficiary may need to follow two distribution requirements:
- Take annual required minimum distributions (RMDs), and
- Fully distribute the inherited IRA by December 31 of the tenth year after the original owner’s death.
If a required distribution is missed, the IRS may impose a 25% excise tax on the amount not withdrawn. The tax may be reduced to 10% if the mistake is corrected within the applicable correction window. This article focuses on IRA rules; employer-plan rules can differ.
Inherited IRAs May Have Two RMD Requirements
The SECURE Act changed the distribution rules for many inherited IRAs. Many non-spouse beneficiaries must empty an inherited IRA within 10 years of the original owner’s death.
But the 10-year rule does not always mean a beneficiary can wait until year 10 to withdraw everything.
If the original IRA owner died on or after their required beginning date for RMDs, a non-eligible designated beneficiary may have two obligations:
- Take annual RMDs during the 10-year period; and
- Distribute the entire remaining account by December 31 of the tenth year following the year of death.
That is why inherited IRA beneficiaries should not assume the 10-year rule gives them a decade of complete withdrawal flexibility.
When Does the 10-Year Rule Apply?
The 10-year rule generally applies to a designated beneficiary who is not an eligible designated beneficiary.
Eligible designated beneficiaries include:
- A surviving spouse;
- A minor child of the account owner, until reaching the age of majority;
- A disabled individual;
- A chronically ill individual; and
- An individual who is not more than 10 years younger than the IRA owner.
Eligible designated beneficiaries may generally use life-expectancy payments, although special rules can later trigger a 10-year payout period.
For a non-eligible designated beneficiary, the inherited IRA generally must be fully distributed by the end of the tenth year after the owner’s death.
When Are Annual RMDs Required During the 10-Year Period?
The original owner’s age and RMD status matter.
If the original owner died before their required beginning date
Generally, the beneficiary must fully distribute the inherited IRA by the end of year 10. Annual RMDs may not be required in years 1 through 9.
If the original owner died on or after their required beginning date
The beneficiary may need to take annual RMDs based on the applicable life-expectancy calculation while also meeting the 10-year full-distribution deadline.
In plain English: the beneficiary may not be able to simply wait until year 10. Annual withdrawals can be required along the way.
What Is the Penalty for a Missed RMD?
A missed RMD can trigger a 25% excise tax on the amount that should have been distributed but was not.
For example, if a beneficiary was required to withdraw $12,000 and took only $7,000, the shortfall is $5,000. The potential excise tax is 25% of the $5,000 shortfall, or $1,250.
The tax may be reduced to 10% if the beneficiary corrects the missed distribution within the correction window and properly reports the tax.
The correction window generally ends on the earliest of:
- The date the IRS mails a deficiency notice;
- The date the tax is assessed; or
- The last day of the second taxable year that begins after the year in which the tax was imposed.
The IRS may also waive the tax when the shortfall resulted from reasonable error and the taxpayer takes steps to correct it.
Do Original Roth IRA Owners Have RMDs?
No. Original Roth IRA owners do not have lifetime RMDs.
However, beneficiaries who inherit a Roth IRA may still be subject to inherited-account distribution rules, including the 10-year rule. Although qualified Roth IRA distributions are generally tax-free, beneficiaries still need to follow the applicable withdrawal timeline.
Do Traditional IRA Owners Have RMDs?
Yes. Traditional IRA owners generally must begin taking RMDs by April 1 of the year after the year they reach age 73.
This includes traditional IRAs and generally SEP and SIMPLE IRAs. The first-year timing can result in two taxable distributions in the same calendar year if the first RMD is delayed until the following April and the next year’s RMD is then taken by December 31.
Key Takeaway
The phrase “10-year inherited IRA rule” can be misleading. For some beneficiaries, it is not simply a 10-year deadline. It can mean annual RMDs plus a requirement to empty the entire account by the end of year 10.
Because beneficiary type, owner age at death, and account type all matter, inherited IRA beneficiaries should confirm the required distribution schedule with their tax adviser and IRA custodian before the year-end deadline.
Frequently Asked Questions
Does the 10-year rule mean I can wait until year 10 to withdraw an inherited IRA?
Not always. If the original owner died on or after beginning RMDs, annual beneficiary RMDs may apply in addition to the requirement to empty the account by the end of year 10.
Is the missed RMD penalty 25% of the entire IRA?
No. The potential 25% excise tax applies to the amount that should have been distributed but was not.
Can the 25% missed-RMD tax be reduced?
Yes. It may be reduced to 10% if the missed distribution is corrected during the IRS correction window and the tax is properly reported.
Do inherited Roth IRAs have RMD rules?
Inherited Roth IRAs can be subject to beneficiary distribution rules, including the 10-year rule, even though original Roth IRA owners do not have lifetime RMDs.
Does a surviving spouse have the same inherited IRA rules as other beneficiaries?
Not necessarily. A surviving spouse often has additional choices, including treating the IRA as their own or rolling it into their own IRA, depending on the circumstances.
Source: IRS Publication 590-B (2025) explains the 10-year rule, beneficiary RMD requirements, and the 25% excise tax on insufficient distributions.
Contact uDirect IRA Services
Want to learn more about self-directed IRAs and retirement investing beyond Wall Street?
Call uDirect IRA Services at (866) 447-6598
Email info@uDirectIRA.com
Click HERE to schedule a consultation with the uDirect team.