Ask the Editor – Tax Questions about Inherited IRAs

Every week in the Ask the Editor series, Kiplinger’s tax letter editor Joy Taylor answers questions about topics submitted by readers. This week she is looking at questions about inherited IRAs. (Get a free issue of Kiplinger Tax Letter or subscription.)

1. 10 Year Clean Out Rules

Question: I inherited a traditional IRA from my aunt. I heard there are 10 years of distribution rules. How does this work?

Joy Taylor: Before 2020, the owner of a deceased IRA could entrust accounts to children, grandchildren or other individual beneficiaries, and those heirs could extend the minimum distribution (RMD) from traditional IRAs inherited over their lifetimes, thus increasing tax-free funds over decades. Congress saw this as a loophole for the rich, and the 2019 Safe Law Act reduced breaks for most non-spouse beneficiaries.

For most non-spouse IRAs inherited since 2019, the IRA fund must be distributed to the beneficiaries within 10 years of the owner’s death. Therefore, if the IRA owner dies in February 2025, the beneficiary must clean the IRA by December 31, 2035. There are exceptions to account holder voters or minor children (up to age 21), chronically ill or disabled, or beneficiaries under the age of 10 years of age than the owner of the deceased.

If the IRA owner dies before the start date of the RMD and the beneficiary is subject to the 10-year clean-out rule, the beneficiary does not need to make a minimum distribution each year. Beneficiaries can quickly cash out, win a 10th year, get an annual distribution, or get or skip each year unless it is completely exhausted by the end of the 10-year period.

If an IRA owner dies after the start date of the RMD, the beneficiary must withdraw the annual RMD from at least the inherited IRA for a decade that begins the year after the original owner dies and completely depletes the IRA by the latest tenth year. In this situation, beneficiaries generally know their annual RMD based on their average life expectancy, so the younger the beneficiary, the smaller the annual RMD amount.

If the IRA owner dies in 2020, 2021, 2022, or 2023, there is relief. If you do not obtain distributions on 2021-2024, any IRA beneficiaries whose original owner is already subject to RMD will be fined. They don’t need to make up for the missing distribution. But they need to take RMD from 2025.

2. Inherited Ross IRA

Question: How do the 10-year rule for an inherited IRA apply to an inherited Roth IRA?

Joy Taylor: Similar to traditional IRA rules, many non-accidental beneficiaries of Roth IRAs inherited from 2019 and later must clean out their accounts by the end of the tenth year after the owner’s death. But money is tax-free for them. Also, since owners of a Roth IRA do not need to take RMD annually, inherited Roth IRA beneficiaries do not need to worry about whether they died before or after the start date to collect RMD. These beneficiaries may choose to clean out their accounts in year 1, take out all Roth IRA funds until year 10, and wait until year 10 to obtain an annual distribution.

3. IRAs inherited before 2020

Question: I inherited the traditional IRA from my mother in 2017. Do the 10-year clean-out rules apply to me?

Joy Taylor: No. The 10-year clean-out rule applies only to IRAs inherited since 2019. That is, the original IRA owner died after 2020. Therefore, you can perform a “stretch IRA”. This means you can stretch your RMD for a lifetime.

4. IRA inherited by a surviving spouse

Question: In 2022, I inherited my husband’s IRA, which died when a 40-year-old woman died at the age of 52. She chose to treat the IRA as an inherited IRA rather than treating it as her own. Are surviving spouses subject to the 10-year clean-out rule?

Joy Taylor: Surviving spouses who choose to treat an IRA as an inherited IRA will not need to use the 10-year rule to drain their accounts. This allows women to develop their RMD throughout their lifetime.

5. The beneficiary of the IRA is older than the owner of the deceased.

Question: A 52-year-old woman passed away in early 2025 and left her traditional IRA to her 54-year-old brother. Does he need to liquidate his IRA within 10 years? Also, can he withdraw from the IRA before it’s 59½ without paying an early penalty of 10%?

Joy Taylor: In this case, the 10-year clean-out rules for inherited IRAs do not apply. That’s because the beneficiary was over ten years younger than his sister. Therefore, he is considered a qualified designated beneficiary and can increase his annual distribution over his lifetime. He will be subject to normal income tax on withdrawals, but he will not have to pay a 10% penalty for a 59½ distribution from the previous year.

About asking the editor for the tax edition

Kiplinger Tax Letter and Kiplinger Letter subscribers can ask pleasure questions about tax topics. You can find details on how to submit questions with Kiplinger Tax Letter and Kiplinger Letter. (Subscribe to Kiplinger Tax Letter or Kiplinger Letter.)

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