Inherited IRA 10-Year Rule: Annual RMDs (2025)

Navigating the complexities of an inherited IRA can feel like trying to solve a Rubik's Cube blindfolded, especially with the ever-evolving rules around the 10-year distribution period and whether you're actually required to take annual distributions within that timeframe. Many folks assume the 10-year rule means they can just wait until the very end to withdraw everything, only to face hefty penalties. This guide is here to untangle that confusion, explaining precisely how the inherited IRA 10-year rule works, particularly concerning annual Required Minimum Distributions (RMDs) for 2025, and what you need to do to stay compliant.

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Understanding the Inherited IRA 10-Year Rule

When you inherit an Individual Retirement Account (IRA), it's not a simple transfer. The rules governing inherited IRAs, especially the infamous 10-year rule, have undergone significant changes in recent years, leaving many beneficiaries scratching their heads. Before the SECURE Act came along, many non-spousal beneficiaries could "stretch" distributions over their own life expectancy, allowing for long-term tax deferral. Those days, for most, are a thing of the past, replaced by a much tighter timeline.

What is the 10-Year Rule and Who Does It Apply To?

At its core, the 10-year rule mandates that the entire balance of an inherited IRA must be distributed to the beneficiary by the end of the 10th calendar year following the original owner's death. This rule was a major overhaul introduced by the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019. It dramatically changed the landscape for non-spousal beneficiaries, effectively shortening the period over which they could receive funds and potentially pushing them into higher tax brackets sooner.

Imagine your aunt passed away in 2023 and left you her traditional IRA. Under the 10-year rule, you would need to liquidate the entire account by December 31, 2033. This doesn't mean you must wait until the last minute; it simply sets the final deadline. The critical part, which we'll dive into shortly, is whether you also have to take money out every year leading up to that deadline. The rule primarily applies to what the IRS calls "non-eligible designated beneficiaries." If you’re not an eligible designated beneficiary, this rule most likely applies to you. For a deeper dive into the overall framework, you might find our guide on Inherited IRA Rules 2026 (10-Year Rule) helpful.

The Key Difference: Eligible vs. Non-Eligible Designated Beneficiaries

This distinction is absolutely crucial because it determines whether you're subject to the 10-year rule with annual RMDs or if you have more flexible options. The SECURE Act carved out specific categories of beneficiaries who are considered "eligible designated beneficiaries" (EDBs) and are not subject to the strict 10-year rule in the same way.

Eligible Designated Beneficiaries include:

Surviving Spouses: They have the most flexibility, often being able to roll over the inherited IRA into their own, treating it as if it were always theirs, or delaying distributions until the deceased spouse would have turned 73 (or 70.5 if they passed before 2020). For more on this, check out Inherited IRA for a Spouse vs Non-Spouse.
Minor Children of the Deceased IRA Owner: This isn't just any minor child, but specifically the IRA owner's own child. They can stretch distributions over their life expectancy until they reach the "age of majority" (typically 18 or 21, depending on the state). Once they reach this age, the 10-year rule then kicks in for the remaining balance.
Chronically Ill Individuals: Beneficiaries certified as chronically ill, as defined by the IRS, can stretch distributions over their life expectancy.
Disabled Individuals: Similar to the chronically ill, those who are certified as disabled can also stretch distributions over their life expectancy.
Individuals Not More Than 10 Years Younger than the Deceased IRA Owner: This category is a bit of a catch-all for beneficiaries who are close in age to the original IRA owner.

If you don't fall into one of these categories, you are likely a "non-eligible designated beneficiary," meaning the 10-year rule applies to you. Understanding these definitions is the first step in figuring out your tax obligations. Our post on Eligible Designated Beneficiary Explained can provide even more clarity on these critical distinctions.

The Impact of the SECURE Act and SECURE Act 2.0

The original SECURE Act, enacted in late 2019, truly upended the long-standing "stretch IRA" strategy. Prior to this, a grandchild, for instance, could inherit an IRA and take distributions over their potentially very long life expectancy, maximizing tax-deferred growth for decades. The SECURE Act largely eliminated this for non-spousal beneficiaries, pushing most into the 10-year distribution window. The intention was to accelerate tax revenue for the government.

However, the implementation of the 10-year rule, particularly regarding annual RMDs, caused a great deal of confusion. The IRS initially interpreted the rule to mean that if the IRA owner died on or after their Required Beginning Date (RBD) for RMDs (the age at which they had to start taking their own RMDs), then the non-eligible designated beneficiary would also have to take annual RMDs during the 10-year period, in addition to fully distributing the account by the end of the 10th year. If the owner died before their RBD, then no annual RMDs were required, only the full distribution by the 10-year mark.

This distinction, and the initial lack of clear guidance, led to significant uncertainty. Thankfully, the SECURE Act 2.0, passed in late 2022, and subsequent IRS notices provided some relief and clarification, particularly concerning penalties for missed RMDs in 2021, 2022, 2023, and even extending to 2024. This brings us directly to the current state of affairs for 2025, which is what we need to focus on next.

Navigating Required Minimum Distributions (RMDs) within the 10-Year Rule for 2025

The biggest source of stress and misunderstanding for beneficiaries under the 10-year rule is whether they need to take annual distributions before the 10-year deadline. For a while, the answer was a muddy "maybe," but the IRS has stepped in to clarify. For the most part, if the original IRA owner had already started taking their own RMDs before they passed away, you, as a non-eligible designated beneficiary, will likely need to take annual RMDs during the 10-year period, including in 2025.

The IRS Guidance on Annual RMDs for Non-Eligible Beneficiaries

After the initial confusion following the SECURE Act, the IRS issued proposed regulations in February 2022 that clarified the RMD requirements for beneficiaries subject to the 10-year rule. These regulations stated that if the original IRA owner died on or after their required beginning date (RBD) for taking RMDs, then any non-eligible designated beneficiary must continue taking annual RMDs based on the original owner's remaining life expectancy, for years 1 through 9 of the 10-year period. The entire remaining balance then has to be distributed by the end of the 10th year.

This was a big deal because many beneficiaries had assumed "10-year rule" meant no distributions were needed until the 10th year. Recognizing the widespread confusion and the potential for countless beneficiaries to face penalties, the IRS issued notices (like Notice 2022-53, Notice 2023-54, and Notice 2024-2) that essentially waived penalties for missed RMDs under this specific scenario for 2021, 2022, 2023, and 2024. This relief was incredibly important and gave beneficiaries time to adjust.

However, for 2025, this penalty relief is generally not expected to continue. This means that if the original IRA owner died on or after their RBD, and you are a non-eligible designated beneficiary, you will be required to take an annual RMD for 2025. If you miss it, you could face penalties. It's a return to the "new normal" clarified by the proposed regulations. For a general overview of these distribution rules, our guide on RMDs on Inherited IRAs Explained offers broader context.

Calculating Your Annual RMD for 2025

Calculating your RMD for an inherited IRA under the 10-year rule (when annual distributions are required) can feel a bit like advanced algebra, but it's manageable once you understand the formula. The calculation uses the deceased IRA owner's life expectancy. You won't use your own life expectancy, nor will you use the uniform lifetime table. Instead, you'll generally refer to the IRS's Single Life Expectancy Table (Table V).

Here's a simplified breakdown for calculating your annual RMD for 2025 if the original owner died on or after their RBD and you're a non-eligible designated beneficiary:

Determine the Deceased Owner's Life Expectancy: For the first distribution year, you'd find the original owner's age in the year following their death on Table V.
Subtract One for Each Subsequent Year: For each subsequent year, you subtract one from the prior year's life expectancy factor. For example, if the factor for the year after death was 20.6, for the next year it would be 19.6, and so on.
Divide Account Balance by Life Expectancy Factor: Take the fair market value of the inherited IRA as of December 31st of the previous year (e.g., December 31, 2024, for your 2025 RMD) and divide it by the life expectancy factor determined in step 2.

Let's use an example: Suppose your father passed away in 2023 at age 78, having already started RMDs. You inherited his IRA, and you are a non-eligible designated beneficiary.

Year of death: 2023.
Year for initial life expectancy: 2024 (the year after death).
Your father would have been 79 in 2024. Looking at the IRS Single Life Expectancy Table (Table V), the life expectancy factor for age 79 is 11.2.
For your 2024 RMD (which was covered by penalty waiver): If the IRA balance was $200,000 on Dec 31, 2023, the RMD would be $200,000 / 11.2 = $17,857.14.
For your 2025 RMD: Let's say the IRA balance was $190,000 on Dec 31, 2024. The life expectancy factor for 2025 would be 11.2 – 1 = 10.2. Your 2025 RMD would then be $190,000 / 10.2 = $18,627.45.

Remember, the entire account must be emptied by the end of the 10th year after the owner's death. So, in our example (owner died 2023), the account must be fully distributed by December 31, 2033. This calculation can be intricate, and many financial tools, like those offered by SmartAsset, or your IRA custodian can often help you with these specific numbers, or you might choose to consult with a financial advisor. Knowing How to Avoid Taxes on an Inherited IRA often starts with understanding these RMDs.

Consequences of Missing an RMD

Missing an RMD can be a costly mistake. If you fail to take the required amount by the deadline, or if you take less than the required amount, the IRS may impose a significant penalty. Historically, this penalty was a whopping 50% of the amount you should have withdrawn but didn't.

The good news is that the SECURE Act 2.0 reduced this penalty from 50% to 25%. Even better, if you correct the missed RMD promptly (within a certain timeframe and by submitting Form 5329), the penalty can be further reduced to 10%. While the IRS has waived these penalties for certain years (2021-2024) due to the confusion surrounding the 10-year rule, it's crucial to remember that this relief is not expected to extend into 2025.

If you realize you've missed an RMD for 2025, act quickly. Take the distribution as soon as possible and consult with a tax professional. You'll generally need to file IRS Form 5329, "Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts," to report the shortfall and explain why it happened. In some cases, the IRS may waive the penalty entirely if you can demonstrate that the failure was due to a reasonable error and you're taking reasonable steps to remedy it. This isn't a guarantee, but it's worth pursuing if you find yourself in this situation.

Specific Scenarios and Exceptions

While the 10-year rule with annual RMDs applies broadly to non-eligible designated beneficiaries, there are crucial exceptions and different rules for specific beneficiary types. It's not a one-size-fits-all situation, and understanding these nuances can significantly impact your financial planning.

Spousal Beneficiaries: A Different Path

Surviving spouses have a distinct advantage and significantly more flexibility when inheriting an IRA. They are considered "eligible designated beneficiaries" and are not subject to the strict 10-year rule with its annual RMDs in the same way. This is a critical distinction that can lead to vastly different outcomes for tax planning and financial longevity.

Here are the primary options for a surviving spouse:

Spousal Rollover (Treat as Own IRA): This is often the most advantageous option. A surviving spouse can roll the inherited IRA funds into their own existing IRA, or simply treat the inherited IRA as their own. When they do this, they become the new owner, and the account is subject to their own RMD rules (starting at age 73 for most). This allows for maximum tax deferral and control over the funds.
Inherit as Beneficiary IRA (Maintain as Deceased's IRA): The spouse can keep the inherited IRA separate from their own, treating it as a "beneficiary IRA" or "inherited IRA." If they choose this route, they can delay taking RMDs until the deceased spouse would have reached their required beginning date (age 73 for those who turned 73 after December 31, 2022). This can be beneficial if the surviving spouse is younger and doesn't need the funds immediately, allowing the money to continue growing tax-deferred.
Cash Out: While an option, cashing out an inherited IRA can trigger significant income taxes, especially if it's a traditional IRA. This is generally not advisable unless there's an immediate, pressing financial need.

The flexibility offered to spouses is a testament to the tax code's recognition of the financial interdependence within marriage. It's a significant advantage that allows for continued estate planning and wealth preservation. For a comprehensive look at how spouses manage these assets, refer to our article on Inherited IRA for a Spouse vs Non-Spouse.

Minor Children as Beneficiaries

When a minor child inherits an IRA, the situation is a bit more nuanced than for other non-eligible designated beneficiaries. As mentioned earlier, the deceased IRA owner's own minor child is considered an "eligible designated beneficiary." This distinction is important because it means they are not immediately subject to the 10-year rule.

Instead, a minor child can stretch RMDs over their own life expectancy until they reach the "age of majority." The age of majority typically means the age at which a person legally becomes an adult, which is usually 18 or 21, depending on state law. During this period, annual RMDs must be taken. Once the minor child reaches the age of majority, the 10-year rule then kicks in. The 10-year period begins in the year the child reaches the age of majority, and the remaining balance must be distributed by the end of the 10th year following that event.

For example, if a child inherits an IRA at age 10 and the age of majority in their state is 18, they would take RMDs based on their life expectancy until they turn 18. At age 18, the 10-year countdown begins, and the remaining funds must be fully withdrawn by the time they are 28. This temporary stretch allows for continued tax deferral during their formative years but still mandates a relatively accelerated distribution once they become an adult.

Trusts as Beneficiaries: See-Through vs. Non-See-Through

Naming a trust as the beneficiary of an IRA can be incredibly complex and often requires meticulous planning to avoid undesirable tax consequences. The way the IRS views a trust for RMD purposes depends heavily on whether it qualifies as a "see-through" (or "look-through") trust.

See-Through Trust (Conduit or Accumulation Trust): For a trust to be considered "see-through," it must meet specific IRS requirements, including being a valid trust under state law, irrevocable, identifiable beneficiaries, and the trust document being provided to the IRA custodian. If a trust qualifies as see-through, the beneficiaries of the trust are treated as the designated beneficiaries of the IRA for RMD purposes. This means that the RMD rules (like the 10-year rule) would apply based on the oldest beneficiary of the trust. A "conduit trust" immediately passes any distributions from the IRA directly to the trust beneficiaries, while an "accumulation trust" can hold distributions within the trust before distributing them later.
Non-See-Through Trust: If a trust does not meet the "see-through" requirements, it is treated as a non-person entity. In this scenario, if the IRA owner died after their required beginning date, the IRA must be fully distributed within the remainder of the original owner's life expectancy. If the IRA owner died before their required beginning date, the entire IRA must be distributed within five years of the owner's death. This is a much less flexible and potentially more tax-heavy outcome than for individual beneficiaries.

The intricacies of naming a trust as a beneficiary highlight why it's so important to work with an experienced estate planning attorney. They can ensure the trust is properly drafted and named as beneficiary to achieve the desired tax-efficient outcome and avoid the onerous 5-year rule for non-see-through trusts.

Here's a quick comparison of the RMD requirements for common beneficiary types under the 10-year rule scenario (assuming the owner died on or after their RBD):

Beneficiary Type	Annual RMDs Required During 10-Year Period?	10-Year Deadline Starts When?	Other Key Considerations
Non-Eligible Designated Beneficiary	Yes (based on deceased's life expectancy)	Year after death	Entire account must be distributed by the end of the 10th year. Penalty relief for 2021-2024 is generally not expected to continue for 2025.
Minor Child (of original owner, EDB)	Yes (based on child's life expectancy)	Year child reaches age of majority (typically 18 or 21)	Full distribution required by the end of the 10th year after reaching age of majority.
Trust (See-Through, with individual EDBs)	Yes (based on oldest trust beneficiary's life expectancy)	Year after death (if EDBs of trust are identified)	Complex rules; requires careful trust drafting and notification to custodian. Oldest beneficiary dictates RMD schedule.
Surviving Spouse	No (if rolled over to own IRA)	Not subject to 10-year rule if rolled over. Can delay RMDs if kept as beneficiary IRA.	Most flexible options, including rolling over to own IRA or treating as beneficiary IRA. See Inherited Traditional IRA Tax Treatment for more detail.

Strategic Planning for Inherited IRAs

Inheriting an IRA, while a blessing, comes with significant tax responsibilities and planning opportunities. Simply letting the account sit without understanding the rules can lead to missed distributions and penalties, or a less-than-optimal tax outcome. Proactive planning is key to maximizing the value of your inherited assets.

Maximizing the 10-Year Window

For non-eligible designated beneficiaries subject to both annual RMDs and the 10-year rule, or for those whose loved one died before their RBD and only face the 10-year deadline without annual RMDs, strategy is crucial. The goal is often to balance tax efficiency with your personal financial needs.

If you are not required to take annual RMDs (because the owner died before their RBD), you have the flexibility to wait until the 10th year to take all the money out, or you can take it out incrementally over the 10 years. Taking it all out in the 10th year might push you into a much higher tax bracket, potentially eroding a significant portion of the inheritance. A more strategic approach might be to:

Spread Distributions: Take smaller distributions each year over the 10-year period. This allows you to manage your taxable income, potentially keeping you in a lower tax bracket each year. This is particularly effective if you anticipate lower income years in the future, or if you can time distributions around other financial events.
Fund Other Accounts: As you take distributions, consider moving the after-tax money into other investment vehicles like a taxable brokerage account or even a Roth IRA (if you meet income requirements and have earned income). This allows the money to continue growing, albeit in a taxable environment, but gives you more control.
Evaluate Your Tax Situation Annually: Your income, deductions, and tax bracket can change from year to year. Reviewing your financial situation annually can help you decide how much to withdraw from the inherited IRA to minimize your overall tax burden. This might involve taking larger withdrawals in years where your income is lower due to unemployment, retirement, or other factors.

Remember, the flexibility of the 10-year window (when no annual RMDs are required) is a powerful tool. Use it wisely to optimize your tax position. For those facing annual RMDs, these strategies become about managing the additional withdrawals you might choose to take beyond the RMD to fully empty the account by year 10. You might also want to explore Do I Pay Taxes on an Inherited IRA? for more tax-related insights.

When to Seek Professional Guidance

Given the complexity of inherited IRA rules, particularly with the layers added by the SECURE Act and ongoing IRS guidance, consulting with professionals is almost always a good idea. Trying to navigate these waters alone can lead to costly mistakes.

Financial Advisors: A qualified financial advisor can help you understand the specific RMD rules that apply to your situation, calculate your RMDs, and develop a distribution strategy that aligns with your financial goals and tax situation. They can help you project your income and tax brackets over the 10-year period to determine the most tax-efficient withdrawal schedule. Many platforms, including SmartAsset, offer tools and resources to help you find local financial advisors specializing in estate planning and retirement distributions.
Tax Professionals (CPAs or Enrolled Agents): These experts are invaluable for ensuring you are compliant with all IRS regulations. They can help you correctly report your RMDs on your tax return, assist with filing Form 5329 if a penalty is assessed, and offer advice on other tax implications of your inheritance.
Estate Planning Attorneys: If the inherited IRA is part of a larger estate or if a trust is involved, an estate planning attorney is essential. They can interpret trust documents, clarify beneficiary designations, and ensure that the inherited assets are managed according to the deceased's wishes and in compliance with state and federal law.

Don't hesitate to reach out to professionals. The fees you pay them could be far less than the penalties or lost growth you might incur from making an uninformed decision.

Other Inherited Retirement Accounts

It's important to remember that while we've focused heavily on inherited IRAs, the 10-year rule and RMD concepts extend to other types of inherited retirement accounts as well, though with slight variations.

Inherited Roth IRAs: The 10-year rule also generally applies to inherited Roth IRAs for non-eligible designated beneficiaries. The key difference is that qualified distributions from an inherited Roth IRA are typically tax-free. This means that while you still have to empty the account by the 10th year (and potentially take annual RMDs if the owner died on or after their RBD), the money you withdraw isn't subject to income tax. This makes the timing of withdrawals from an inherited Roth IRA less about minimizing income tax and more about maximizing the tax-free growth potential within the 10-year window. Explore our guide on Inherited Roth IRA Rules for more detailed information.
Inherited 401(k)s (and other employer-sponsored plans): When you inherit a 401(k), 403(b), or other employer-sponsored retirement plan, the same general 10-year rule for non-eligible designated beneficiaries applies. If the original owner died on or after their RBD, annual RMDs will be required during the 10-year period. Often, beneficiaries will roll these funds into an inherited IRA to simplify management and potentially have more investment options, but the underlying distribution rules remain similar. Our article on Inherited 401(k) Rules & Taxes breaks down these specific scenarios.

The overarching theme is consistency in the 10-year rule across various inherited retirement accounts for most non-spousal beneficiaries. However, the tax treatment of the distributions (e.g., pre-tax vs. post-tax contributions) will depend on the type of account inherited.

Disclaimer

This article is for general informational purposes only and does not constitute professional advice. Laws and regulations vary by location and change over time. Consult a qualified professional for guidance on your specific situation.