You Inherited an IRA. Why Does the IRS Have a Clock Running on It?
Last reviewed: July 2026
If you inherited a retirement account in the last five years, a tax clock may be running that nobody explained to you. It started the day you inherited. Depending on what you have done since, or not done, it may already be shaping a tax bill you have not seen yet. For most non-spouse heirs, that clock is the SECURE Act's 10-year rule, and it forces a decision whether you engage with it or not.
Key Takeaways
- Under the SECURE Act, most non-spouse beneficiaries must fully empty an inherited IRA by the end of the tenth year after the original owner's death.
- Distributions count as ordinary income, so timing them against your other income across the decade is the whole game.
- Final IRS regulations effective in 2025 confirm most heirs owe no minimum in years one through nine, but waiting until year ten spikes your taxes.
- In Maryland, an inherited IRA passing to a non-lineal heir can face a 10% state inheritance tax on top of federal income tax.
About the Author: Jeff Judge, CFP®, AEP®, ChFC®, CLU® is Managing Partner of Chesapeake Financial Planners in Forest Hill, Maryland. He has been helping families and business owners in Harford County and the Baltimore metro area work through inherited accounts and estate planning since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. Jeff's consistent observation: the people who come in early have options, and the ones who come in after they have already taken distributions are usually working backward from a tax bill that could have looked different.
What Does the 10-Year Rule Actually Say?
The 10-year rule says that most non-spouse beneficiaries who inherited a retirement account after December 31, 2019 must distribute the entire account by the end of the tenth year following the original owner's death. There is no required minimum in years one through nine. By the end of year ten, the balance has to be zero, and every dollar you take out is taxed as ordinary income in the year you take it.
Before the SECURE Act, this worked very differently. Most non-spouse beneficiaries could stretch distributions across their own life expectancy. A 45-year-old who inherited a parent's IRA could spread the withdrawals over 30 or more years, paying tax along the way but never in a single heavy bite. The SECURE Act, passed in late 2019, ended that stretch for most heirs. If the original owner died in 2021, you have until December 31, 2031 to empty the account.
This is not obscure, and it is not rare. It now affects hundreds of thousands of people who inherited accounts from parents and other relatives, and most of them were never told the clock existed. The IRS lays out the inherited-account distribution rules in plain terms, but plain terms do not help if no one points you to them.
Who Is Exempt From the 10-Year Rule?
A specific group called eligible designated beneficiaries is exempt from the 10-year rule and can still use the life-expectancy stretch. That group includes surviving spouses, minor children of the account owner, beneficiaries who are chronically ill or disabled, and any beneficiary who is not more than ten years younger than the person who died. If you fall into one of those categories, the old stretch rules may still be available to you.
Everyone else falls under the 10-year rule. Adult children inheriting from a parent, siblings inheriting from a sibling, and most other common inheritance situations all land there. The distinction matters because it changes the entire planning approach: a stretch beneficiary spreads tax over decades, while a 10-year beneficiary has to compress the same decisions into a single decade.
"Jeff Judge has spent significant time working with clients who are navigating inherited assets alongside existing retirement and estate plans, and his view is consistent: the people who come in early have options. The ones who come in after they've already made the distributions are often working backward from a tax bill that could have looked different." – Jeff Judge, CFP®
The reason that observation holds is the same reason the rule is easy to mishandle. Nothing forces you to act in years one through nine, so the path of least resistance is to do nothing. And doing nothing is itself a decision, usually an expensive one.
Why Does the 10-Year Rule Matter More Than It Looks?
The 10-year rule looks manageable: take the money out over ten years, pay tax as you go. The complication is the interaction with your own income, and that is where the cost hides. If you are in your 50s and still working, you may already sit in the 24% or 32% federal bracket. A large distribution from an inherited IRA on top of your salary can push a meaningful slice of that income into the 35% or 37% bracket.
The IRS does not require you to take anything in years one through nine, which sounds like flexibility. But heirs who take nothing for nine years and then face a mandatory full distribution in year ten often trigger the worst possible outcome: their regular income plus the entire inherited balance, all stacked into a single year. The right question is not "how much do I take out?" It is "when do I take it out, given what my income looks like for the next decade?" That requires a multi-year projection. Most people who inherited these accounts have never run one.
There is a Roth conversion angle that complicates the picture further. If you are converting your own traditional IRA to a Roth during these same years, every inherited-IRA distribution and every conversion dollar both count as ordinary income in the same year. They stack. Running a conversion strategy and an inherited-IRA distribution strategy at the same time without coordinating them is one of the more common planning oversights Jeff sees. Neither strategy is wrong on its own. The interaction is the variable that has to be modeled, and our guide to Roth conversions in the pre-RMD gap years walks through how that math works.
What Should You Do With Your Tax Planning?
If you have five or more years left on your 10-year window, you have room to do real planning. The goal is to spread distributions across years in a way that manages your bracket, rather than front-loading or back-loading in a way that spikes your income in any single year. That planning starts with a multi-year income projection: what does your income look like over the next five to ten years, when do you retire, when does Social Security start, and are there other liquidity events on the horizon?
One scenario worth modeling often surprises people. If you expect significantly lower income in the years right after you retire, those may be the years to take the larger inherited-IRA distributions. Lower income means a lower marginal rate. The same distribution that costs you 32 cents per dollar while you are working might cost 22 cents per dollar in the first years of retirement, and across a large account that difference compounds into real money.
The IRS guidance here was genuinely confusing for a while, so the confusion was not your fault. From 2020 through 2024, the agency went back and forth on whether annual distributions were required in years one through nine when the original owner had already started their own required minimum distributions. The final regulations took effect in 2025 and confirmed that for most beneficiaries subject to the 10-year rule, annual distributions in years one through nine are not required. But that flexibility only helps if you use those years on purpose instead of letting the whole distribution fall into year ten by default. If you inherited from someone who had already begun their own required distributions, your situation can carry an extra wrinkle worth checking with a professional.
How Does Maryland's Inheritance Tax Interact With an Inherited IRA?
Maryland adds a layer that almost every piece of national content on inherited IRAs ignores: it is one of the few states that levies both a state estate tax and a separate inheritance tax, and the second one can reach an inherited IRA depending on who inherits it. For a Maryland family, that changes the calculation in a way a generic article will never flag.
Start with the estate tax, because it is the one most people worry about and usually the one that does not apply. Maryland imposes its own estate tax with a $5 million exemption, well below the federal estate tax exemption, which the IRS set at $15 million per person for 2026. Estates below $5 million owe no Maryland estate tax, so for most families this is not the issue.
The inheritance tax is the part that catches people, and it depends entirely on the relationship between the deceased and the heir. Under the Maryland Register of Wills, direct or lineal heirs are fully exempt from the inheritance tax: a spouse, child, grandchild, great-grandchild, stepchild, parent, or grandparent pays nothing. Siblings are exempt too. But collateral heirs, meaning a niece, nephew, aunt, uncle, or cousin, and any friend or individual not related by blood, pay a 10% inheritance tax on what they receive. Maryland's inheritance tax explicitly reaches non-probate assets that pass by beneficiary designation, including employee benefit and retirement plans. So a Maryland resident who leaves an IRA to a niece or a longtime friend hands that heir two tax bills: federal income tax on every distribution under the 10-year rule, plus a 10% Maryland inheritance tax on the value received. A child inheriting the same account pays only the federal income tax.
That is why beneficiary choices deserve a second look for Maryland families, and why the inherited IRA cannot be planned in isolation from the rest of the estate. It also sits alongside the will-and-trust decisions every family faces, which our guide on whether you need a will or a trust covers in depth. Jeff regularly works with families across Harford County, Bel Air, and Forest Hill where the inherited IRA is one piece of a larger picture that includes an inherited home, a business, and an estate that has not closed yet. The state layer is exactly the kind of detail that gets missed when a family relies on advice written for a national audience.
This is the kind of multi-part decision the R.U.D.D.E.R. Method™ is built to structure. The R.U.D.D.E.R. Method™ is Chesapeake Financial Planners' six-step planning process: Review and Recognize, Uncover and Understand, Design and Develop, Discuss and Decide, Execute and Empower, and Reassess and Refine. For an inherited IRA, the "Uncover and Understand" step is where the 10-year clock, the heir's relationship to the decedent, the Maryland tax treatment, and any concurrent Roth conversions all get mapped before a single distribution is taken.
What If You Are a Surviving Spouse or Sharing the Account?
Surviving spouses have options other beneficiaries do not. A surviving spouse can roll an inherited IRA into their own IRA, which means the 10-year rule does not apply and they are treated as the account owner for every purpose going forward. For most surviving spouses who do not need the money immediately, that is the right move. There is one exception worth weighing: if the surviving spouse is under 59½ and may need distributions before then, rolling the account into their own IRA exposes those early withdrawals to a 10% penalty, while keeping it as an inherited IRA allows penalty-free distributions at any age. The penalty and the income tax should both be part of that decision.
If you inherited alongside siblings or other family members, separation matters. Inherited IRAs generally cannot be split after the fact, so each beneficiary should establish their own separate inherited IRA through a direct trustee-to-trustee transfer, ideally within the first year after the death. If that separation did not happen, or the accounts got commingled, the tax situation can get more complicated, and it is worth clarifying with a CPA and a planner before you take any further distributions. The inherited IRA is an individual account with individual tax consequences, but the emotional weight of handling a parent's money is usually shared, and that shared weight is what leads to deferred decisions that carry a real cost.
Frequently Asked Questions
What is the inherited IRA 10-year rule?
The inherited IRA 10-year rule requires most non-spouse beneficiaries who inherited an account after December 31, 2019 to withdraw the entire balance by the end of the tenth year after the original owner's death. Distributions are taxed as ordinary income, and there is no required minimum in years one through nine for most heirs, though the full account must be empty by year ten.
Who is exempt from the inherited IRA 10-year rule?
Eligible designated beneficiaries are exempt and can still stretch distributions over their life expectancy. That group includes surviving spouses, minor children of the account owner, beneficiaries who are chronically ill or disabled, and anyone not more than ten years younger than the deceased. Most adult children and other relatives do not qualify and fall under the 10-year rule instead.
Do I have to take distributions every year from an inherited IRA?
For most beneficiaries subject to the 10-year rule, final IRS regulations effective in 2025 confirm you are not required to take a distribution in years one through nine. The full account simply must be empty by the end of year ten. Spreading withdrawals across the decade is usually smarter than waiting, because a single year-ten distribution can spike your taxable income badly.
Does Maryland tax an inherited IRA?
Maryland can tax an inherited IRA two ways. Distributions are subject to federal and Maryland income tax. Separately, if the heir is a collateral relative such as a niece, nephew, or cousin, or a non-relative, Maryland's 10% inheritance tax applies to the account's value. Lineal heirs like children and grandchildren, plus siblings, are exempt from the inheritance tax.
Should I coordinate Roth conversions with inherited IRA distributions?
Yes. Both inherited IRA distributions and Roth conversions count as ordinary income in the same year, so they stack on your tax return and can push you into a higher bracket together. Running both without coordinating them is a common and avoidable mistake. A multi-year projection that models both at once is the only way to find the lowest-tax path through your 10-year window.
Where This Leaves You
An inherited IRA is rarely a standalone decision. It usually arrives paired with an inherited home, a taxable brokerage account, sometimes a business, and an estate that has not fully closed. Each piece has its own tax treatment, and they interact. The flexibility is widest in the first year or two after the death, and it narrows with every distribution taken without a plan behind it.
If you inherited a retirement account from someone who died after December 31, 2019, and you have not had a specific conversation about the 10-year rule, your distribution strategy, and the Maryland tax layer, that conversation is worth having this year. It does not commit you to anything. It is a planning exercise: what do your next five to eight years of income look like, when does your clock end, and what distribution approach manages the tax across those years. Jeff Judge and the Chesapeake team serve families and business owners across Harford County and the Baltimore metro. Schedule a free fit call at chesapeakefp.com.
A version of this article was originally published on Chesapeake Financial Planners' LinkedIn.
Want to go deeper? Our Inherited IRA 10-Year Rule walks through this step by step.
Disclosures
The information provided is for educational purposes only and should not be construed as investment advice. Investment strategies should be tailored to individual circumstances, risk tolerance, and goals. Past performance doesn't guarantee future results. Consult with qualified financial professionals regarding your specific situation.
Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.
This information is not intended to be a substitute for specific individualized tax, investment or legal advice. We suggest that you discuss your specific situation with a qualified tax, legal or financial advisor.
Advisors associated with Chesapeake Financial Planners may be either (1) LPL Financial Registered Representatives offering securities through LPL Financial, Member FINRA and SIPC, and investment advisor representatives offering investment advice through Great Valley Advisor Group; or (2) solely investment advisor representatives offering investment advice through Great Valley Advisor Group and not affiliated with LPL Financial. Great Valley Advisor Group, and Chesapeake Financial Planners are separate entities from LPL Financial.
