Inherited IRA Minimum Distribution Requirements
Inheriting an IRA creates specific withdrawal obligations. Learn how your beneficiary status dictates your required distribution schedule to ensure compliance.
Inheriting an IRA creates specific withdrawal obligations. Learn how your beneficiary status dictates your required distribution schedule to ensure compliance.
When an individual inherits an Individual Retirement Account (IRA), they must follow rules that govern how and when the money is withdrawn. These mandatory withdrawals are known as Required Minimum Distributions (RMDs), and their purpose is to ensure the tax-deferred funds are eventually distributed and subject to income tax.
Beneficiaries must take these distributions on a specific schedule, and failure to do so can result in penalties. Understanding these obligations is an important step in managing an inherited account, as the distributions are considered taxable income for the beneficiary.
The rules for inherited IRAs hinge on the type of beneficiary you are. The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 established distinct categories that determine the timeline for withdrawing funds.
A surviving spouse holds a flexible position compared to other beneficiary types. Spouses are granted options that are unavailable to other individuals, allowing for planning that can align the inherited assets with their own financial goals.
The SECURE Act created a category called Eligible Designated Beneficiaries (EDBs). This group includes:
To qualify as disabled or chronically ill, an individual must meet specific IRS definitions. For a minor child, this status ends when they reach the age of majority, which is 21 for these purposes. After that point, different rules apply to the remaining funds.
Most non-spouse beneficiaries, such as an adult child or sibling who does not meet the 10-year-age-gap rule, fall into the category of Non-Eligible Designated Beneficiaries. This is the default classification for any individual named on the IRA’s beneficiary form who does not qualify as an EDB. This group saw significant changes under the SECURE Act.
The final category is for non-designated beneficiaries. This group includes any entity that is not an individual, such as the deceased person’s estate, a charitable organization, or a trust that does not meet specific IRS requirements. The rules for this category are the most restrictive, requiring the funds to be distributed relatively quickly.
Once you have identified your beneficiary category, you can determine the specific set of withdrawal rules that apply. These regulations dictate the timeline for emptying the account and vary based on whether the original account owner had started taking their own RMDs before they passed away.
A surviving spouse who is the sole beneficiary has the most flexibility. One option is to treat the inherited IRA as their own by rolling the assets into their personal IRA. This allows the spouse to delay RMDs until they reach the required age for their own distributions.
Alternatively, the spouse can remain a beneficiary of the inherited IRA. If the original owner died before their Required Beginning Date (RBD) for taking RMDs, the spouse can delay distributions until the year the deceased would have reached RMD age. If the owner had already started RMDs, the spouse must begin taking distributions by December 31 of the year after the owner’s death, but they can calculate the RMD based on their own single life expectancy, which often results in smaller required withdrawals.
Eligible Designated Beneficiaries, with the exception of spouses, can take distributions over their own life expectancy, a provision often called the “stretch” IRA. This allows the funds to remain in the tax-advantaged account for a longer period. The annual RMD is calculated using the beneficiary’s age and the IRS Single Life Table, starting in the year following the original owner’s death.
A special rule applies to minor children of the account owner. They can use the life expectancy method during their minority, but once they reach age 21, they become subject to the 10-year rule. The remaining balance must be fully withdrawn by the end of the 10th year after the year they turn 21.
Non-Eligible Designated Beneficiaries are subject to a 10-year rule. This rule mandates that the entire balance of the inherited IRA must be distributed by December 31 of the 10th year following the year of the original owner’s death. For example, if the owner died in 2022, the account must be empty by December 31, 2032.
The application of this rule depends on when the original owner passed away. If the owner died before their RBD, the beneficiary is not required to take annual RMDs during the 10-year period. However, if the owner died on or after their RBD, the beneficiary must also take annual RMDs for years one through nine. In response to confusion over this requirement, the IRS waived penalties for missed annual distributions for 2021 through 2024, but beneficiaries should anticipate these withdrawals will be required beginning in 2025.
The rules for non-designated beneficiaries depend on the timing of the original owner’s death. If the owner died before their RBD, the assets are subject to the 5-year rule. This requires the entire IRA to be distributed by the end of the fifth year following the year of death.
If the owner died on or after their RBD, the beneficiary must take distributions based on the deceased owner’s life expectancy, as if they were still alive. The distributions must begin in the year following the owner’s death and continue annually until the account is depleted.
For beneficiaries required to take annual distributions, the calculation involves the IRA’s value and a specific IRS factor. The process begins with the fair market value of the inherited IRA on December 31 of the year prior to the distribution year.
Next, you must find the correct life expectancy factor from the IRS Single Life Expectancy Table, which is Table I in Appendix B of IRS Publication 590-B. The specific factor you use depends on your age in the distribution year. For non-spouse beneficiaries, the life expectancy factor is determined using their age in the year after the owner’s death and then reduced by one for each subsequent year. Spouses who remain beneficiaries may be able to recalculate their life expectancy each year.
To complete the calculation, you divide the prior year-end account value by the life expectancy factor. For instance, if the inherited IRA was valued at $200,000 on December 31, 2024, and the beneficiary’s life expectancy factor from the table for 2025 is 42.9, the RMD would be $4,662 ($200,000 / 42.9).
Failing to take a Required Minimum Distribution by the deadline results in a penalty. The SECURE 2.0 Act reduced the excise tax for a missed RMD. The tax, which was previously 50%, is now 25% of the RMD shortfall. This means if a beneficiary was required to take a $10,000 RMD but only took $2,000, the penalty would be 25% of the $8,000 shortfall, which amounts to $2,000.
The law provides an incentive for prompt correction. If the beneficiary withdraws the missed RMD amount and files the appropriate tax form within a “correction window,” the penalty is further reduced from 25% to 10%. This correction window generally ends at the close of the second year following the year the RMD was missed.
To report and pay the penalty, the beneficiary must file IRS Form 5329, “Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts.” It is also possible to request a waiver of the penalty by filing Form 5329 and attaching a letter of explanation. The IRS may waive the penalty if the beneficiary can demonstrate that the failure to take the RMD was due to a reasonable error and that they are taking steps to correct the shortfall.