Inherited IRA First Steps: The 10-Year Rule and Annual RMDs

Inherited accounts · About 10 minutes

After inheriting an IRA, first contact the custodian to confirm the owner’s date of death, account type, beneficiary category, required beginning date, and any unfinished year-of-death required minimum distribution (RMD). Establish these facts before deciding how to register the account, whether to move it, or when to withdraw.

The 10-year rule does not apply to every beneficiary, and when it does, annual RMDs may also be required before year 10. The answer depends on the owner’s death relative to the required beginning date and the beneficiary category. Spouses, other eligible designated beneficiaries, and Roth IRAs may follow different paths.

Confirm five facts before discussing withdrawal amounts

1. Exact account type and current custodian or plan.
2. Owner’s date of death and age.
3. Whether the owner had reached the applicable required beginning date.
4. Named beneficiary, relationship, age, and any qualifying condition.
5. Prior-year and year-of-death distributions.

A surviving spouse may have more paths, but not one automatic answer

Depending on the facts, a spouse may be able to keep an inherited IRA, roll eligible assets into the spouse’s own IRA, or use other permitted treatment. The better path can depend on both spouses’ ages, access needs, beneficiary plan, required distributions, creditor considerations, and tax timing. Acting before modeling these differences may remove flexibility.

Classify the beneficiary under current rules

The rules distinguish spouses, eligible designated beneficiaries, other designated beneficiaries, and non-designated beneficiaries such as some estates or trusts. Minor children of the owner, disabled or chronically ill individuals, and beneficiaries not more than ten years younger may fall within special definitions, each with technical requirements.

The ten-year rule does not always mean “do nothing for nine years”

For many designated beneficiaries, the inherited account must be emptied by the end of the applicable tenth year. Whether annual distributions are also required can depend on the original owner’s status and current regulations. A delay-until-year-ten strategy may create a concentrated tax and cash-flow event even when permitted.

Traditional and Roth accounts have different tax character, but both can have deadlines

Traditional inherited distributions are generally taxable except for documented basis. Qualified Roth distributions may be tax-free, yet inherited Roth accounts can still be subject to a distribution period. Coordinate withdrawals with wages, Social Security, Medicare-related income, charitable goals, and state taxation.

Bring the documents that determine the rule

Collect the death certificate, beneficiary confirmation, most recent statements, plan summary or custodial agreement, prior distribution records, tax basis records, trust documents if named, and the custodian’s claim packet. Ask the custodian for options in writing and obtain tax review before an irreversible rollover or distribution.