Inherited IRA Deadlines You Can't Afford to Miss

If you inherit an IRA, three questions decide your rules: Is it a traditional or Roth IRA? Are you an eligible designated beneficiary? And for a traditional IRA, did the owner die before or after their required beginning date? For most adult children who inherit from a parent who died in 2020 or later, the account has to be empty by December 31 of the year containing the 10th anniversary of the death, and some also owe yearly withdrawals along the way.

The video walks through each question. Five free downloads map out the rest: flowcharts for an inherited traditional IRA, an inherited Roth IRA, a spouse's traditional IRA and a twice-inherited traditional IRA, plus a checklist of issues to consider when you inherit. You can download them from this page.

Is your inherited IRA traditional or Roth?

A traditional IRA, sometimes called pre-tax, holds money that hasn't been taxed yet. A Roth IRA holds money that was taxed before it went in. If you're not sure which one you have, the account statement or the company holding the account can tell you.

The difference shows up in two places. The first is taxes. Withdrawals from an inherited traditional IRA count as taxable income. Roth withdrawals generally aren't taxed, as long as certain conditions are met.

The second is the rules. For an inherited Roth IRA, the IRS applies the minimum distribution rules as though the owner died before their required beginning date. So if yours is a Roth, the third question below doesn't apply to you.

Does the 10-year rule apply to you?

If you inherited from your spouse, you have options other beneficiaries don't, including treating the IRA as your own. The spouse flowchart walks through those choices.

Beyond spouses, the IRS gives a small group of beneficiaries more flexibility. These eligible designated beneficiaries are the owner's surviving spouse, the owner's minor child, someone who is disabled, someone who is chronically ill, or anyone not more than 10 years younger than the owner. Your status is set on the date of the owner's death.

If you're in your 50s or early 60s and inherited from a parent, the realistic ways to qualify are usually through a disability or chronic illness. If you inherited from a sibling or someone close to your age, look closely at that last category.

Everyone else follows the 10-year rule. The account has to be empty by December 31 of the year containing the 10th anniversary of the owner's death. If your parent died in 2025, that means the end of 2035.

These rules apply when the owner died in 2020 or later. IRAs inherited from someone who died in 2019 or earlier follow different rules.

Do you have to take yearly withdrawals from an inherited IRA?

For a traditional IRA, it depends on when your parent died compared with their required beginning date. That's the date they had to start taking yearly required minimum distributions, or RMDs. For many parents today, it's April 1 of the year after they turned 73, but it depends on their birth year.

If your parent died before that date, no withdrawal is required for any year before the 10th year. You can take money out on your own schedule, as long as the account is empty by the deadline.

If your parent died on or after that date, yearly withdrawals generally continue in years one through nine, and the rest has to come out by the end of year 10.

That second case catches people off guard. The IRS waived penalties for missed yearly withdrawals from 2021 through 2024. Starting in 2025, those yearly withdrawals are required, and missing one can mean a penalty. If you inherited a few years ago and skipped some years, your tax preparer can help you sort out where you stand.

When should you take money out of an inherited IRA?

The rules set a deadline. They don't tell you when to take the money inside it, and that choice is where the tax planning happens.

Because it's an inherited account, there's no 10% early withdrawal penalty, even if you're under 59 and a half. The bigger issue is how withdrawals stack up. Waiting until year 10 and taking everything at once puts it all on one tax return. With a traditional IRA, that can push more of it into higher tax brackets.

In my experience, the timing of your own retirement matters more here than almost anything else. Withdrawals during your peak earning years stack on top of your salary. Many people have lower income in the years after they stop working and before Social Security starts.

There are two reasonable approaches. Spreading withdrawals evenly over 10 years is simple and predictable. Aiming more of them at lower-income years can save tax, but it takes planning, and you still have to meet the deadline and any yearly minimums.

The effects also reach past your income tax. Medicare's income-related premium adjustments are based on your tax return from two years before the premium year, so a large withdrawal can raise your premiums later if your income crosses certain levels. If you retire before 65 and buy health insurance through the Marketplace, most IRA withdrawals count as income, which can reduce the help you get with premiums. This is where one decision starts to change another.

The bigger questions, like how to invest the money or whether to take more than the minimum, depend on the rest of your retirement income plan. If you'd like help with those, see if Glow is a fit, or start with the Retirement Readiness Check.