Losing a parent brings a pile of paperwork. Somewhere in that pile, there may be an IRA with your name on the beneficiary line. What you do with it in the first year matters more than most people expect.
The rules changed for deaths after 2019. Many adult children now face a deadline their parents never did.
The IRS sorts heirs into groups. A small set, called eligible designated beneficiaries, get more flexible options. That group includes:
Spouses get the most room. A surviving spouse can even roll the account into their own IRA.
Most adult children don’t fit any of those. If that is you, you generally must empty the inherited account by the end of the 10th year after the year your parent died.
Here is where many heirs get tripped up. The 10-year deadline sounds like you can wait until year 10 and take it all at once. Sometimes you can. Sometimes you can’t.
It depends on whether your parent had reached their required beginning date for RMDs. If they died before that date, you can generally take money whenever you like, as long as the account is empty by the deadline. If they died on or after it, the final IRS rules also require yearly withdrawals in years one through nine.
The year of death has its own rule, too. If your parent had not taken the full RMD due for that year, the rest still has to come out.
The IRS waived penalties on those missed yearly amounts for 2021 through 2024 while it finished the rules. That relief has ended. Starting with 2025, the yearly amounts are required. For a walk-through with examples, see how the 10-year rule works for inherited IRAs.
Every taxable dollar you take from an inherited traditional IRA counts as income in the year you take it. That makes the 10-year window a planning tool, not just a deadline.
Waiting until year 10 can stack a large balance onto one tax return. That could push you into a higher bracket. Spreading withdrawals across lower income years, such as a gap between jobs or the years after you retire, may lower the total tax you pay.
You can also take the whole account at once. IRS rules let most beneficiaries do that at any time. Just know that the full taxable amount lands on a single return.
If you skip a required amount, the IRS can charge a 25 percent excise tax on the shortfall. That drops to 10 percent if you correct it within two years.
Inherited Roth IRAs are simpler. Roth owners never have to take RMDs, so the IRS treats them as dying before their required beginning date. That means Roth heirs face the 10-year deadline but no yearly withdrawals. Withdrawals of contributions are tax free, and most earnings withdrawals are too.
One more wrinkle applies if the IRA named an estate, a charity, or another entity instead of a person. The IRS says those beneficiaries follow the older rules for deaths before 2020.
Start with three moves before you touch the account.
Ask the custodian what paperwork it needs from you and how the account will be titled. Then write the final deadline year at the top of your plan so it never slips.
For the official breakdown by beneficiary type, read the IRS page on retirement plan beneficiaries. A little planning in year one can save a lot of tax by year ten.