What Is the Inherited IRA 10-Year Rule and Why Does Waiting Until Year 10 Cost You?
Last reviewed: July 2026
The inherited IRA 10-year rule is widely misunderstood, and that misunderstanding costs beneficiaries real money. Most people who inherit a traditional IRA believe they have 10 flexible years to let the account grow and then distribute on their own timeline. In many cases, that is not how the rule works. And even for beneficiaries who do have full flexibility within the window, waiting until year 10 to take a large lump-sum distribution is one of the most preventable tax mistakes in financial planning. Why does the IRS have a 10-year clock on an inherited IRA?
Key Takeaways
- The SECURE Act of 2019 eliminated the stretch IRA for most non-spouse beneficiaries, replacing it with a mandatory 10-year distribution window.
- If the original account owner was already taking required minimum distributions (RMDs), most non-spouse beneficiaries must take annual distributions in years 1 through 9, not just at year 10.
- A beneficiary earning $175,000 who waits until year 10 to withdraw $400,000 from an inherited IRA could face an effective rate on those dollars well above 32%, compared to a much lower rate if distributions were spread across lower-income years.
- Maryland's inheritance tax applies a 10% rate on assets passing to collateral heirs such as siblings, nieces, and nephews — making the planning urgency even higher for families outside the direct line.
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 navigate estate planning and inherited account decisions since earning his CFP® certification in 2013, by using Chesapeake Financial Planners’ signature process, the R.U.D.D.E.R. method™. He holds the AEP® designation specifically because these situations sit at the intersection of tax planning and wealth transfer — and the nuances matter more than most beneficiaries realize until it is too late.
What the SECURE Act Actually Changed About Inherited IRAs
Why did the rules change and who does the new rule apply to?
Before 2020, most beneficiaries who inherited an IRA could stretch distributions over their own life expectancy. A 45-year-old who inherited could potentially distribute across 40 years, keeping the annual distributions small and the tax impact manageable. The SECURE Act, signed into law in December 2019, ended that for most beneficiaries.
Under the current rules, non-spouse beneficiaries who inherited from someone who died after December 31, 2019 — and who do not qualify as Eligible Designated Beneficiaries — must distribute the entire account within 10 years of the original owner's death. The 10-year window does not extend based on the beneficiary's age or life expectancy.
Eligible Designated Beneficiaries are the exception. They can still use the old stretch method. That category includes:
- Surviving spouses
- Minor children of the original account owner (until they reach the age of majority, then the 10-year rule kicks in)
- Disabled or chronically ill individuals
- Individuals not more than 10 years younger than the decedent
If you do not fall into one of those categories, the 10-year rule applies. Most adult children inheriting from a parent do not qualify for any exception.
The Myth: Why Most Beneficiaries Think They Have 10 Years to Decide
Is it true that you can wait until year 10 to take the full distribution?
The myth is understandable. For some beneficiaries — specifically those who inherited from someone who had not yet started RMDs — the 10-year window does offer genuine flexibility. You can distribute any amount at any time during the 10 years, provided the account is fully emptied by the 10-year deadline.
That flexible interpretation of the rule is accurate for one category of inheritors. It is not accurate for everyone. And even where it is technically accurate, the tax math almost always argues against waiting.
The rule also does not mean the account can sit untouched for a decade. There is no option to skip distributions indefinitely and pay a single tax bill on your terms at the very end. The account must be fully distributed by December 31 of the year that is 10 years after the year of death. That is a hard deadline.
The Reality: When Annual RMDs Are Required Within the 10-Year Window
What happens if the original account owner was already taking RMDs?
Here is where a large number of beneficiaries run into unexpected compliance problems. How do you use the years between retirement and RMDs to reduce lifetime taxes?
The IRS clarified in proposed and final regulations that if the original account owner had already reached their required beginning date — meaning they were already taking RMDs before they died — then most non-spouse beneficiaries subject to the 10-year rule must also take annual distributions in years 1 through 9. The account cannot sit untouched for nine years and then be distributed entirely in year 10.
The required beginning date for RMDs is April 1 of the year following the year the account owner turns 73 per SECURE Act 2.0. If your parent was 74 when they passed, they had already started RMDs. Your inherited IRA likely requires annual distributions, not just a year-10 distribution.
Not knowing about this requirement does not protect you from the penalty. The IRS phased in enforcement over recent years, but the annual distribution requirement is active. Beneficiaries who discover this late face the challenge of catching up on missed distributions plus potential penalties.
"The beneficiary who waits until year ten to withdraw $400,000 faces a tax bill that could have been avoided with a two-hour planning conversation in year one." — Jeff Judge, CFP®, AEP®, ChFC®, CLU®
This is why the first question after inheriting a retirement account is not about investments. It is about which version of the rule applies to this specific account.
The Stacking Problem: What Happens When the Inherited IRA Meets Your Own Income
Beneficiaries subject to the 10-year rule face a core strategic choice: take a lump sum in year 10, or spread distributions across the window. The tax difference between these two paths is substantial.
| Strategy | RMD Approach | Tax Impact | Best For |
|---|---|---|---|
| Year-10 lump sum | Single full withdrawal at deadline | Entire balance stacks on top of other income — potentially pushing into 32%–37% bracket | Beneficiaries with very low income in year 10 only |
| Spread across years 1–10 | Voluntary annual distributions (or required if owner was in RMD status) | Each withdrawal taxed at that year's marginal rate — usually lower than year-10 stacking | Most beneficiaries, especially those with other income sources |
How does an inherited IRA distribution affect your total tax picture?
Even for beneficiaries who have full flexibility within the 10-year window, the default behavior is to wait. I see this regularly in my practice: inherited IRAs sitting untouched for four, five, six years while the beneficiary has not built a distribution plan. The account is growing tax-deferred. Taking a distribution means paying ordinary income taxes now. Waiting feels financially rational. It usually is not.
Consider the tax arithmetic. A beneficiary earning $175,000 in salary takes no distributions for nine years from a $400,000 inherited traditional IRA. In year 10, the deadline arrives. They withdraw the full $400,000. That $400,000 is added to their $175,000 of income, resulting in $575,000 of total taxable income for that year. Under 2026 federal income tax brackets, a large portion of the inherited IRA distributions gets taxed at the 32% and 37% marginal rates. Jeff Judge notes: "When a beneficiary earning $175,000 waits nine years and then withdraws a $400,000 inherited IRA all at once, they have turned a manageable 10-year tax plan into a single-year spike into the 37% bracket that no amount of hindsight can undo."
Compare that to a beneficiary who spread $40,000 per year across the 10-year window. Most of those distributions fall at much lower marginal rates. The total tax bill across the decade is substantially smaller. The same $400,000 becomes a very different tax event depending only on when it is taken.
The stacking problem gets worse when the beneficiary also has their own retirement accounts approaching RMD age. At age 73, their own 401(k) or IRA will generate mandatory taxable distributions on top of any inherited IRA distributions. Beneficiaries who front-load their inherited IRA distributions before their own RMDs start capture lower-bracket years that will not be available later.
This is exactly the kind of situation where the R.U.D.D.E.R. Method™ applies: identifying the Right time, Understanding the rules that govern distributions, thinking through the Distribution sequence, and making Deliberate choices about timing rather than letting deadlines make the choices for you.
Maryland Angle: When Inheritance Tax Adds Another Layer
Does Maryland tax inherited IRAs separately from federal income tax?
For Maryland families, the planning stakes are higher than the federal analysis alone suggests. Why is Maryland the only state with both an estate tax and an inheritance tax, and how do I plan for it?
Maryland is one of the few states that imposes both an estate tax and an inheritance tax. The Maryland inheritance tax applies to property passing to collateral heirs — siblings, nieces, nephews, cousins, and non-family members — at a 10% rate. Direct descendants (children, grandchildren) and spouses are exempt from the inheritance tax, but anyone outside that narrow group faces an immediate 10% levy on the inherited amount.
If a Maryland resident inherits a $400,000 IRA from an aunt or uncle, the inheritance tax applies in addition to the federal and state income taxes on distributions. The combined tax burden across the 10-year window can be substantial. Planning the distribution sequence to minimize income tax — and understanding the inheritance tax impact upfront — is not optional in these situations. It is the difference between the beneficiary keeping 60 cents on the dollar or significantly less.
I work with families in Harford County and the Baltimore corridor who discover the Maryland inheritance tax exposure only after they have already begun taking distributions. Earlier is always better. A beneficiary who understands their full tax picture in year one has options that do not exist in year eight.
What a Better Inherited IRA 10-Year Plan Actually Looks Like
How should a beneficiary approach distributions across the 10-year window?
The core strategy is simple: match the timing of inherited IRA distributions to your income in each year. Take more in years when your income from other sources is lower. Take less in years when your income is higher.
For someone in their late 50s who just inherited, this often means front-loading distributions before Social Security begins and before their own 401(k) RMDs start. Both of those events add to ordinary income in later years. When does a Roth conversion make financial sense and how do you execute it? Taking inherited IRA distributions while those future income sources are still off is the most common high-value move in these plans.
The type of account matters. A traditional inherited IRA generates ordinary income when distributed. An inherited Roth IRA carries no tax on qualified distributions — but the 10-year distribution requirement still applies. For inherited Roth IRA holders, the question shifts from tax minimization to whether to let the account grow within the tax-free window as long as possible.
For charitably inclined beneficiaries over 70.5 who have their own IRAs (not the inherited IRA), qualified charitable distributions allow up to $111,000 annually in 2025 (adjusted annually for inflation) to be transferred directly from a traditional IRA to a qualified charity, counting toward any distribution requirement and excluded from income. This does not apply to the inherited IRA itself but can reduce overall taxable income in years when inherited IRA distributions are large. What Are the Basics of Estate Planning for High Net Worth?
Frequently Asked Questions
Does the 10-year rule apply if I inherited from a spouse?
No. Surviving spouses are Eligible Designated Beneficiaries and have additional options not available to other beneficiaries. A spouse can roll the inherited IRA into their own IRA, treat it as their own account, or use the stretch method based on life expectancy. The 10-year rule applies to non-spouse beneficiaries who do not qualify for another exception.
What happens if I miss a required annual distribution during the 10-year window?
If the original owner was in RMD status when they died and you are required to take annual distributions in years 1 through 9, missing a distribution triggers a 25% excise tax on the amount that should have been distributed. The IRS reduced this penalty from 50% under SECURE Act 2.0. You may be able to reduce the penalty to 10% if you correct the missed distribution within two years. Work with a tax advisor as soon as you discover a missed distribution.
Can I distribute the entire inherited IRA in year one to get it over with?
Yes, you can distribute the entire account in year one if you choose. But that is rarely the right move. A lump-sum distribution in year one pushes the entire balance onto your tax return for that year, just as a year-10 distribution would. The tax math favors spreading distributions across years with lower total income. Year one works only if your income that year happens to be unusually low.
What if I inherited a Roth IRA?
The 10-year distribution rule still applies to inherited Roth IRAs. The difference is that qualified distributions from an inherited Roth IRA are not subject to federal income tax, provided the original owner's account met the five-year rule. Since there is no tax on distributions, many beneficiaries choose to let an inherited Roth IRA grow for the full 10 years before distributing, maximizing tax-free growth. The deadline still applies — the account must be empty by the 10-year mark.
Is this different for minor children inheriting from a parent?
Minor children of the original account owner are Eligible Designated Beneficiaries. They can use the life-expectancy stretch method — but only until they reach the age of majority. At that point, the 10-year rule kicks in, and they must fully distribute the remaining account within 10 years. Parents who plan to leave IRAs to minor children should understand this two-phase structure.
How does this affect my own estate planning if I have an IRA?
If you have a traditional IRA and plan to leave it to adult children, the 10-year rule means they will likely face a compressed distribution window with significant income tax consequences. Some account owners choose to do Roth conversions during their own lifetime to reduce the tax burden on heirs. Others use life insurance or charitable vehicles to address the tax liability at death. This is worth planning around now, not leaving as a problem for your beneficiaries.
Talk Through Your Distribution Strategy Before Year One Ends
If you have recently inherited a retirement account — or if you expect to — the time to map out your inherited IRA 10-year rule distribution strategy is now. The 10-year clock does not wait for you to be ready.
Which version of the rule applies to your account? Do you need to take annual distributions, or do you have flexibility? What does your income look like across the window? Are there Roth conversion opportunities or Maryland inheritance tax considerations that change the plan?
These questions have real, dollar-denominated answers. A conversation early in the window gives you options that disappear the longer you wait.
Schedule a call with Jeff Judge to walk through your inherited account situation. No obligation. Just a clear look at what the rule actually requires and what the distribution strategy should look like given your specific income and tax picture.
This post is adapted from 'Inherited IRA Myth Costs Beneficiaries Thousands' 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.
