The rules changed dramatically. Most people don't know it. Here's what you're required to do — and the costly mistakes to avoid.
If you've recently inherited an IRA — or you're expecting to — the information you find online is probably out of date, incomplete, or both.
The SECURE Act of 2019 changed the rules dramatically. The SECURE Act 2.0, passed in late 2022, added more wrinkles. And then in 2024, the IRS finalized regulations that cleared up some of the remaining confusion — but also confirmed that many beneficiaries have obligations they didn't know existed.
If you inherited a significant IRA and you've been assuming it works like it used to, this post is for you.
How It Used to Work (The Stretch IRA)
Before 2020, a non-spouse beneficiary who inherited an IRA could take required minimum distributions based on their own life expectancy. If you inherited at age 45, you could essentially "stretch" distributions over 30+ years, keeping most of the money growing tax-deferred and managing the income in a way that minimized your tax bite year to year.
That's gone for most people. The SECURE Act eliminated it.
The 10-Year Rule: What It Actually Means
For most non-spouse beneficiaries who inherit an IRA from someone who died after December 31, 2019, the account must be fully distributed within 10 years of the original owner's death.
The clock starts the year after the owner dies. By the end of the 10th year, the account must be at zero.
Here's what a lot of people missed: the IRS clarified in 2024 that if the original account owner had already started taking RMDs (required minimum distributions) before they died, the beneficiary must also take annual RMDs during years 1–9 — and then fully deplete the account by year 10.
This is not optional. And if you've been letting the account sit for a few years without distributions because you thought you could wait until year 10 — you may already owe penalties.
Already Inherited an IRA? Let's Make Sure You're on the Right Track.
The rules here are complex and the penalties are real. If you've inherited a large IRA and you're not sure what you're required to do — or when — let's sit down and map it out. We work with families across St. Louis managing exactly this kind of situation.
We help families preserve and grow meaningful wealth.
Who Is Exempt From the 10-Year Rule?
Not everyone falls under it. The IRS created a category called "Eligible Designated Beneficiaries" (EDBs) who can still use the old stretch rules:
Surviving spouses. A spouse has the most flexibility of anyone. They can treat the inherited IRA as their own, roll it into their own IRA, or take distributions based on their life expectancy. Spouses also get to delay RMDs until they turn 73.
Minor children of the deceased. A minor child — the account owner's own child, not a grandchild — can use the stretch method until they reach the age of majority. Once they turn 21, the 10-year clock starts. It's a delayed version of the rule, not a permanent exemption.
Disabled or chronically ill individuals. Qualifying under IRS definitions of disability or chronic illness allows the stretch IRA treatment to continue.
Beneficiaries not more than 10 years younger than the deceased. If you're close in age to the person who left you the IRA — a sibling, for example — you may still qualify for the stretch.
Everyone else — adult children, grandchildren, other relatives, non-spouse partners, friends — falls under the 10-year rule.
Why a $3M Inherited IRA Can Be Real Tax Problem
Let's work through a common real-world scenario.
Your parent passes away at 78 and leaves you a $3M traditional IRA. You're 52. You're a high earner already — maybe $300,000 a year in income.
Under the 10-year rule, you need to get that $3M out within 10 years. If the account continues to grow, you might be distributing $350,000–$400,000 per year. Added to your existing income, you're looking at a significant portion of those distributions being taxed at the top federal bracket (37%) — plus state taxes.
There is no way to avoid the taxes entirely. But timing, planning, and in some cases Roth conversions from your own accounts can meaningfully change the picture over the 10-year window. The difference between a thoughtful plan and no plan all can be significant.
Roth IRAs Are Different — In a Good Way
If you inherited a Roth IRA, the 10-year rule still applies. The account still has to be distributed within 10 years.
The difference: qualified Roth distributions are tax-free. So while you can't let it sit indefinitely, you're not looking at the same tax drag on every dollar that comes out. Growth inside the Roth during those 10 years is also tax-free.
For Roth beneficiaries, the question is more about investment strategy than tax strategy — though there are still decisions worth thinking through.
Mistakes We See People Make
1. Assuming the old rules still apply. The SECURE Act change caught a lot of people off guard. If someone told you years ago that you could stretch distributions over your lifetime, confirm with an advisor whether that's still true for your specific situation.
2. Waiting until year 10 to take everything out. If the account owner had already started RMDs, you can't do this. And even if they hadn't, pulling $2M–$3M out in a single year is a tax disaster. Spreading distributions strategically over the 10-year window almost always makes more sense.
3. Missing RMDs. The penalty for missing an RMD is 25% of the amount you should have taken — reduced to 10% if corrected quickly. If annual distributions are required and you're not taking them, the clock is running.
4. Not coordinating with your own tax situation. How much you pull from an inherited IRA each year should be coordinated with your regular income, your own retirement accounts, and your long-term plan. It doesn't exist in a vacuum.
5. Commingling with your own IRA (if you're not the spouse). Non-spouse beneficiaries cannot roll an inherited IRA into their own IRA. It has to stay titled as an inherited IRA. Rolling it into your own account — even by accident — can be an irrevocable taxable event.
We Help Families Navigate Inherited IRAs.
This is one of the highest-stakes financial decisions a family can face. The rules are complex, the tax implications are significant, and the window to fix mistakes is limited. Let's make sure you have a plan.
We help families preserve and grow meaningful wealth.
What You Should Do Right Now
Determine what category you're in. Spouse, Eligible Designated Beneficiary, or subject to the 10-year rule. This drives everything else.
Find out if the original owner had started RMDs. This determines whether you have annual distribution requirements or more flexibility in how you pace things.
Review the account's investment mix. You inherited their portfolio. It may not match your goals, risk tolerance, or timeline.
Model out the 10-year distribution schedule. Think about your tax situation each year, not just the total. Some years it may make sense to take more. Other years, less.
Coordinate with your estate plan and your own retirement accounts. An inherited IRA doesn't exist in isolation. The decision about when and how much to distribute affects your Roth conversion strategy, your own future RMDs, and ultimately what you pass to the next generation.
The Bottom Line
Inheriting a large IRA is a gift — but it comes with real obligations and real tax consequences. The rules that apply today are meaningfully different from what they were just five years ago, and a lot of families are operating on outdated assumptions.
The good news is that with the right plan, you can work within the 10-year window in a way that minimizes unnecessary taxes and keeps the wealth doing what it's supposed to do.
That planning conversation is exactly what we do.
More from One Bridge Wealth Management:
- John Bogle: The Legacy of the Vanguard Founder and His Philosophy on Investing — This post covers how John Bogle of Vanguard revolutionized the investment world that many advisors still do not utilize.
- Estate Planning for Individuals With $5 Million Portfolios — An inherited IRA is often just one part of a larger estate. This post covers how high-net-worth families should be thinking about the full picture.
- The One-Page Financial Plan: Less Distraction, More Focus — A large inheritance can complicate your financial life fast. Here's how to cut through the noise and stay focused on what matters.
- The Costly Fall of Fame: 5 Professional Athletes Who Lost It All — A sobering reminder that wealth without a plan doesn't last — no matter how large the number.
One Bridge Wealth Management | Clayton, MO | onebridgewealth.com
This content is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified professional regarding your specific situation.