When a parent dies, an IRA can arrive along with the casseroles and the paperwork. Grief is heavy enough. Nobody wants a tax surprise on top of it.
Yet many adult children who inherited an IRA after 2019 do not know two things. The account generally must be emptied within 10 years, and in some cases a distribution is also required every single year. Here is how the rules work.
For IRA owners who died after December 31, 2019, most beneficiaries who are not a spouse must withdraw the entire balance by December 31 of the year containing the 10th anniversary of the owner's death. If the owner died in 2025, the deadline is December 31, 2035. (Source: IRS Publication 590-B, https://www.irs.gov/publications/p590b)
The law carves out "eligible designated beneficiaries," who may be able to stretch distributions over their life expectancy instead:
(Sources: IRS Publication 590-B; final regulations, Federal Register, July 19, 2024, https://www.federalregister.gov/documents/2024/07/19/2024-14542/required-minimum-distributions)
Most adult children do not fit these categories, so the 10-year rule applies.
If the owner had already reached the age when their own required minimum distributions began, a beneficiary under the 10-year rule generally must also take a distribution in each of years one through nine, then empty the account by year 10.
The IRS waived penalties for these missed annual distributions for 2021 through 2024 while it finalized the rules. (Source: IRS Notice 2024-35, https://www.irs.gov/pub/irs-drop/n-24-35.pdf) The final regulations apply starting in 2025. So if an annual distribution applies to you, the 2026 amount is due by December 31, 2026.
Missing one can bring a 25% excise tax on the shortfall, reduced to 10% if corrected in time. (Source: IRS RMD FAQs, https://www.irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs)
Here is a hypothetical example, not based on any real family. A mother dies in 2024 at 80, already taking her RMDs. Her son, 55, inherits her IRA. He generally must take a distribution each year from 2025 through 2033, based on his life expectancy, and withdraw whatever remains by December 31, 2034.
A spouse has more choices. You may be able to treat the IRA as your own, roll it into your own IRA, or keep it as an inherited IRA. A younger spouse who needs access before 59 and a half sometimes keeps it as an inherited account for a time, because distributions to a beneficiary are generally not subject to the 10% early withdrawal tax. Each path has different rules. (Source: IRS Publication 590-B)
Withdrawals from an inherited traditional IRA are generally taxed as ordinary income. Waiting until year 10 and taking everything at once can push a large amount into one tax year, raising your bracket and possibly your Medicare premiums two years later.
Questions to ask your tax professional:
"Moreover, it is required of stewards that they be found faithful" (1 Corinthians 4:2, ESV). An inheritance is the fruit of someone else's lifetime of work. Handling it carefully honors them. For some families, part of that care is asking what portion should bless the church or the next generation.
If you have inherited an IRA and want to see how withdrawals fit your own retirement paycheck, take the free Retirement Paycheck Readiness Scorecard at scorecard.matt25capital.com, or call our office at 620-670-9455.
I'm Will Snodgrass, CFP®, with Matt25 Capital, serving Christian pre-retirees and retirees from our office in The Woodlands, Texas, and by video with clients nationwide. Advisory services are available only where Will is properly registered or exempt from registration.
At Matt25 Capital, we help Christian families navigate complex financial decisions with wisdom, integrity, and faith-centered guidance. Schedule a complimentary consultation today.
Schedule a ConsultationThe opinions voiced in this material are for general information and educational purposes only and are not intended to provide specific advice or recommendations for any individual. Nothing in this blog constitutes investment, legal, or tax advice. Please consult with a qualified professional before making any financial decisions. Past performance is not indicative of future results. All investing involves risk, including the potential loss of principal. Any hypothetical examples used are for illustrative purposes only and do not represent actual client results. Confirm current IRS, Social Security Administration, and plan rules for your situation. Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network®. Certified Financial Planner Board of Standards Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board's initial and ongoing certification requirements. Matt25 Capital is a separate entity from Commonwealth Financial Network®.
This material does not constitute legal or tax advice. Inherited retirement account rules depend on the type of account, the owner's age at death, and the beneficiary's status, and they are subject to change. Consult a qualified tax professional before taking or delaying a distribution.