What Is the 5-Year Rule for Inherited IRAs?

Inheriting an Individual Retirement Account (IRA) offers financial advantages but also complex distribution requirements. The “5-year rule” for inherited IRAs refers to a specific timeline for distributing the entire account balance, not a percentage withdrawal. Its applicability has changed significantly over time.

Defining the 5-Year Rule

The 5-year rule for inherited IRAs mandated that the entire account balance be distributed by December 31st of the fifth year following the original IRA owner’s death. This rule required complete liquidation of the account by the end of the fifth calendar year after the owner passed away.

Unlike traditional Required Minimum Distributions (RMDs), this rule did not require annual withdrawals during the five-year period. Beneficiaries had the flexibility to take distributions at any time within this window, provided the full amount was withdrawn by the deadline.

When the 5-Year Rule Applied

Historically, the 5-year rule applied based on whether the original IRA owner died before their Required Beginning Date (RBD) for RMDs and the type of beneficiary. Prior to the SECURE Act, if an IRA owner passed away before their RBD, the 5-year rule generally applied to designated beneficiaries, such as non-spouse heirs.

The 5-year rule also applied to non-individual beneficiaries, including estates, charities, or certain trusts, regardless of whether the original IRA owner had reached their RBD. For example, if an IRA owner died at age 65 and named their estate as the beneficiary, the estate had to empty the IRA by December 31st of the fifth year following the owner’s death.

The landscape for inherited IRAs changed with the SECURE Act, effective January 1, 2020. For deaths occurring after December 31, 2019, the 10-year rule largely replaced the 5-year rule for most non-eligible designated beneficiaries. This made the 5-year rule primarily relevant only for non-individual beneficiaries or in cases where the original owner died before 2020.

Meeting the 5-Year Distribution Requirement

Complying with the 5-year rule was a straightforward process focused solely on the final liquidation deadline. Unlike traditional RMDs, there was no requirement for beneficiaries to take specific annual distributions during the five-year period. The entire account balance had to be completely withdrawn by December 31st of the fifth calendar year following the IRA owner’s death.

Beneficiaries had flexibility in how they met this requirement. They could choose to withdraw the entire balance as a lump sum in the fifth year, or stagger distributions over the five-year window. For instance, a beneficiary might take partial withdrawals each year, or wait until the final year to deplete the account.

Current Rules for Inherited IRAs

The rules governing inherited IRAs underwent substantial changes with the SECURE Act, which became effective for deaths occurring on or after January 1, 2020. For most non-spouse beneficiaries, the primary distribution rule is now the 10-year rule. Under this provision, the entire inherited IRA balance must be distributed by December 31st of the tenth year following the original IRA owner’s death.

While the 10-year rule generally allows flexibility in when withdrawals are taken within the decade, recent IRS guidance, effective for distributions starting in 2025, clarifies that annual RMDs may be required during the 10-year period if the original owner had already begun taking RMDs. However, certain beneficiaries, known as Eligible Designated Beneficiaries (EDBs), retain more extended distribution options. EDBs include surviving spouses, minor children of the deceased (until they reach the age of majority, usually 21), disabled individuals, chronically ill individuals, and individuals who are not more than 10 years younger than the original IRA owner. These EDBs may still be able to spread distributions over their own life expectancy, offering continued tax deferral.