If you inherited a traditional IRA from someone who was already taking required minimum distributions (RMDs), you may have to take annual withdrawals for the next decade, and the account must be empty by the end of the tenth year.
The Internal Revenue Service waived penalties for missed withdrawals from 2021 through 2024 while the rules were being finalized. That grace period is over. Starting with the 2025 tax year, the rules are fully enforced. If you missed a 2025 RMD, a 25 percent penalty applies unless you take corrective action now.
Who Does the 10-Year Rule Apply To?
The SECURE Act, passed in 2019, eliminated the “stretch IRA” for most non-spouse beneficiaries. Under the old rules, you had an option to spread withdrawals across your own lifetime. That option is gone for most people who inherit today.If you are a non-eligible designated beneficiary (NEDB)—which covers most adult children and other non-spouse heirs—the 10-year rule is probably going to apply to you. In general, you are exempt if you fall into one of these categories:
- the surviving spouse of the deceased
- a minor child of the deceased (the 10-year rule applies once you reach adulthood)
- a beneficiary who is chronically ill or disabled
- a beneficiary who is not more than 10 years younger than the original owner
When Do Annual Withdrawals Have to Start?
The answer depends on whether the original IRA owner died before or after their required beginning date (RBD), generally April 1 of the year following the year they turned 73.- If the original owner died before their RBD (not yet taking RMDs): No annual withdrawals are required, and the account must be emptied by end of year 10.
- If the original owner died on or after their RBD (was already taking RMDs): The general rule is that annual withdrawals are required every year, and the account must be emptied by end of year 10.
The 10-year clock starts the year after the original owner’s death. If you inherited the IRA in 2022, your deadline to fully empty the account is Dec. 31, 2032.
How Much Has to Come Out Each Year?
There is no fixed percentage. Your annual RMD is calculated using two inputs:- the account’s balance as of Dec. 31 of the prior year
- your life expectancy factor from the IRS Single Life Expectancy Table in IRS Publication 590-B
Prior year-end balance ÷ life expectancy factor = Your RMD for the year
Your life expectancy factor is based on your age as of Dec. 31 of the current distribution year. Look up that number in the IRS table each year, it changes as you age. You recalculate annually using the updated factor and the prior year’s Dec. 31 balance.
Your IRA custodian can often provide this calculation directly. A tax professional can verify it, which is worth doing in your first distribution year.
What Happens If You Missed Your 2025 RMD?
The penalty for a missed RMD is 25 percent of the amount you should have withdrawn. The IRS reduces that to 10 percent if you take the corrective distribution and file Form 5329 within the two-year correction window.Here is what to do if you missed a 2025 distribution:
- Take the missed distribution now. Withdraw the full amount you should have taken in 2025 as soon as possible.
- File Form 5329. This IRS form reports additional taxes on qualified retirement plans. You will attach it to your tax return or file it as a standalone form.
- Request penalty abatement, if applicable. If this is your first missed RMD and you have a reasonable explanation, the penalty might be waived by the IRS. Attach a written explanation to Form 5329 when you file.
FAQs About the Inherited IRA 10-Year Rule
What Is the Difference Between an Eligible Designated Beneficiary and a Non-Eligible Designated Beneficiary?
An eligible designated beneficiary includes surviving spouses, minor children of the deceased, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the original owner. These individuals can spread withdrawals over their lifetime instead of following the 10-year rule. Everyone else is a eligible designated beneficiary subject to the 10-year rule. Most adult children who inherit a parent’s traditional IRA fall into the NEDB category.Can I Wait Until Year 10 and Take Everything Out at Once?
It depends on when the original owner died. If they died before their required beginning date and had not yet started RMDs, you are not required to take annual distributions and may take the full balance in year ten. If they had already started RMDs, annual withdrawals are required throughout the 10-year period. Taking everything in year ten in that case does not avoid penalties for missed annual distributions in earlier years.How Do I Find My Life Expectancy Factor for the RMD Calculation?
Your life expectancy factor comes from the Single Life Expectancy Table in IRS Publication 590-B, available at irs.gov. Find your age as of Dec. 31 of the current distribution year and read the corresponding factor. Divide the account’s prior December 31 balance by that factor to get your RMD amount. Your IRA custodian may also calculate this for you. Verifying it independently is advisable, particularly in the first year of distributions.The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.
From The Epoch Times