Inheriting an IRA: Charting a Course Beyond the 10-Year Rule

An inherited IRA can represent decades of someone’s hard work and careful saving. Receiving one often comes during an emotional time, when financial decisions may be the last thing on your mind.

You don’t need to decide everything at once. But before moving money or requesting a withdrawal, it helps to understand the rules—and how the inheritance fits into your own financial picture.

With a thoughtful plan, you can honor the legacy you’ve received while making informed decisions about what comes next.

The Rules Depend on Who Is Inheriting

There isn’t one set of instructions for every inherited IRA, sometimes called a beneficiary IRA. Your options depend on your relationship to the original owner, the type of account, and when the owner died.

Surviving spouses generally have more flexibility, including the option to treat an inherited IRA as their own. Many adult children and other individual beneficiaries must instead empty the account within 10 years.

Certain beneficiaries qualify for exceptions, including the original owner’s minor child, qualifying disabled or chronically ill individuals, and people no more than 10 years younger than the owner. Older inheritances, where the owner died before 2020, generally follow different rules.

That makes identifying your situation the first step—before choosing investments or deciding how much to withdraw.

Ten Years Doesn’t Always Mean You Can Wait

For beneficiaries subject to the 10-year rule, the account generally must be emptied by December 31 of the tenth year following the owner’s death. If the owner dies in 2026, that deadline is December 31, 2036.

For an inherited traditional IRA, there is another important distinction:

• If the owner died before their required beginning date for required minimum distributions: The 10-year rule generally allows you to choose when to withdraw during that period.

• If the owner died on or after that date: Annual required minimum distributions generally apply during years one through nine, with the remaining balance withdrawn by the end of year 10.

  
  

The IRS’s final regulations retained the requirement for annual withdrawals in that second situation. Taking a required minimum distribution does not eliminate the obligation to empty the account by the deadline.

A Withdrawal Schedule Is Also a Tax Decision

Withdrawals from an inherited traditional IRA are generally taxable as ordinary income, except for any applicable after-tax basis. Receiving an inheritance does not automatically make those withdrawals tax-free.

That means the timing deserves attention.

Imagine inheriting an IRA while you’re still working, with retirement three years away. Taking large withdrawals immediately could add income during your higher-earning years. Depending on your circumstances, taking required amounts now and larger withdrawals after retirement may produce a different tax outcome.

Waiting until the final year can create its own problem: a large remaining balance that must be withdrawn all at once.

The goal is to compare several years together. Your salary, retirement date, other income, cash needs, and remaining withdrawal deadline all belong in that conversation. Equal annual withdrawals may be convenient, but they aren’t automatically the best fit.

Spouses Have an Additional Decision to Make

For a surviving spouse, moving inherited assets into their own IRA may make sense. But age and access to the money matter.

Distributions taken as a beneficiary from an inherited IRA generally avoid the 10% early-withdrawal tax. If a spouse instead treats the IRA as their own, withdrawals before age 59½ may be subject to that additional tax unless an exception applies.

For a younger surviving spouse who needs income, this difference can be particularly important. Review the options before making a transfer.

Inherited Roth IRAs Still Have Deadlines

A Roth IRA can offer valuable tax advantages to beneficiaries, but it does not necessarily allow the money to remain in the account indefinitely.

Many non-spouse beneficiaries must still empty an inherited Roth IRA within 10 years, although annual withdrawals generally aren’t required during years one through nine. Qualified withdrawals are tax-free; earnings may be taxable if the original owner’s five-tax-year requirement has not been met.

That creates a different planning question: how much should remain invested for potential tax-free growth, and how much is needed sooner?

Get the Account Setup Right

A non-spouse beneficiary cannot simply combine an inherited IRA with their own IRA. Moving it between financial institutions generally requires a direct trustee-to-trustee transfer into a properly titled inherited IRA. Taking possession of the money can create a taxable distribution that cannot be undone through a standard 60-day rollover.

Before authorizing a transaction, ask the custodian and your advisor to confirm the account registration and transfer process.

Give the Inheritance a Place in Your Plan

An inherited IRA may help support retirement, provide flexibility during a career change, or fund priorities that matter to your family. The right approach starts with understanding both the deadlines and the purpose of the money.

At SkyBlue Wealth Advisors, we help clients connect retirement decisions with thoughtful tax planning. If you’ve inherited an IRA—or want to prepare your family for the accounts they may one day receive—we can help you chart a course that fits your broader financial life.

This article is for informational purposes only and is not individualized investment, tax, or legal advice. Inherited IRA rules vary based on the account, beneficiary, and circumstances. Consult your financial, tax, and legal professionals before making decisions.