You Inherited an IRA and Have 10 Years to Empty It. Does That Mean You Can Wait Until Year 10?
Recently, I was speaking with a client and his wife about an inherited IRA.
The husband had inherited a retirement account from a parent, and they were trying to understand what to do next.
They knew about the 10-year rule.
Their understanding was simple: They had 10 years to empty the account, so perhaps they could leave the money invested and deal with the withdrawals later.
It's an understandable assumption.
But here's what I explained.
Having 10 years to empty an inherited IRA doesn't always mean you can wait until year ten to take your first distribution.
And even when waiting is permitted, it may not be the most tax-efficient choice.
The difference can matter, especially for families approaching retirement.
1. The 10-Year Rule Has an Important Catch
Under the SECURE Act, many non-spouse beneficiaries who inherit an IRA from someone who died in 2020 or later must empty the account by December 31 of the tenth year following the original owner's death.
For example, if a parent died in 2025, the account generally must be emptied by December 31, 2035.
But whether withdrawals are required along the way depends on an important detail.
Had the original IRA owner reached their required beginning date for distributions before passing away?
For many adult children and other non-spouse beneficiaries subject to the 10-year rule, here's how it works:
Original IRA Owner's Situation | General Rule for the Beneficiary |
Died before their required beginning date | Annual RMDs generally aren't required during years 1–9, but the account must be emptied by year 10. |
Died on or after their required beginning date | Annual RMDs generally are required during years 1–9, and the remaining balance must be withdrawn by year 10. |
These rules reflect the IRS's final regulations, which became applicable beginning in 2025.
The IRS provided relief from certain missed inherited IRA RMD penalties for 2021 through 2024, but that relief did not continue into 2025. IRS
Surviving spouses and certain other eligible designated beneficiaries may have different options.
Special rules can also apply to trusts, estates, and inherited accounts involving earlier deaths.
Winnie's tip: Before developing a withdrawal strategy, confirm the original owner's date of death, required beginning date, and your beneficiary classification. Don't rely on the 10-year deadline alone.
2. A Recent University Study Reveals Something Important About Inheritances
There's another reason I believe inherited IRA planning deserves more attention.
A 2026 study published in Financial Services Review, conducted by researchers from the University of Alabama and Texas Tech University, examined how people handled inherited money.
The researchers analyzed 3,005 inheritances using data from the University of Michigan's
Health and Retirement Study.
They found that approximately 42% of inheritances had been entirely spent by the next survey wave, roughly one year later.
The researchers also found that, on average, each inherited dollar was associated with approximately 61 cents in additional net worth at the next measurement. FSR Test
An important distinction: This study examined inheritances broadly, not inherited IRAs specifically. It also used historical data from 2010 through 2018, before the current 10-year IRA rules took effect.
Still, the findings raise a useful question.
When we inherit money, do we have a plan for it, or are we simply responding to the money as it arrives?
An inheritance can create financial opportunities. But without a thoughtful plan, it's easy to
overlook how the money might support longer-term goals.
And with an inherited traditional IRA, there's another consideration.
Taxes.
3. Why Waiting Until Year 10 Could Create a Tax Surprise
Let's return to the conversation with my client and his wife.
One of the questions worth exploring is how inherited IRA withdrawals might affect their income taxes.
Consider a hypothetical couple.
They're both 58, earning a combined $250,000 annually, and planning to retire at 62.
One spouse inherits a $500,000 traditional IRA.
They have ten years to empty it.
If they take large distributions while both are working, those withdrawals may increase their taxable income.
But if they expect their income to decline after retirement, the tax consequences could be different.
Of course, waiting has trade-offs.
The account may continue growing.
Annual RMDs may be required.
And a large remaining balance could eventually need to be withdrawn in the final year.
For perspective, a hypothetical $500,000 account growing at 5% annually, with no withdrawals, would reach approximately $814,000 after ten years.
That's not a forecast. Actual investment returns will vary, and this no-withdrawal example would not satisfy annual RMD requirements when those apply.
But it illustrates why waiting can create a larger future distribution obligation.
The goal isn't simply to postpone taxes. It's to understand how distributions may affect your taxes across the entire 10-year period.
4. What Vanguard's Research Found About Withdrawal Timing
This is where the research becomes particularly useful.
In a September 2024 analysis, Vanguard researchers compared three inherited IRA withdrawal approaches:
Taking the entire balance in year ten.
Taking required annual minimum distributions, then withdrawing the remaining balance in year ten.
Taking roughly equal distributions throughout the 10 years.
Across more than 1,500 modeled scenarios, roughly equal annual distributions produced the lowest total taxes in nearly every case.
However, Vanguard also noted that minimizing taxes is not necessarily the same as maximizing after-tax wealth.
The preferred strategy may differ depending on income, tax rates, investment returns, and other circumstances.
That's an important distinction.
Taking more money out earlier may reduce future taxable distributions.
But it also means less money remains in the tax-deferred account, potentially changing future investment growth and taxes on assets reinvested elsewhere.
There isn't one withdrawal strategy that's appropriate for every family.
Winnie's tip: Build a 10-year tax map
Instead of deciding on inherited IRA withdrawals one year at a time, consider creating a projection that includes:
Expected employment income and bonuses.
Planned retirement dates.
Social Security and pension income.
Required inherited IRA distributions.
Potential changes in tax brackets.
Medicare premium considerations.
The projected balance remaining in year ten.
Then compare several withdrawal schedules.
The question isn't necessarily, “How little can I withdraw this year?”
A more useful question may be:
“How could different withdrawal schedules affect my overall financial picture over the next decade?”
5. Don't Overlook the Year-of-Death RMD
Here's another detail that families sometimes miss.
If the original IRA owner was required to take an RMD in the year they died but hadn't completed it, the remaining amount generally still must be distributed under the applicable rules.
This obligation is separate from the beneficiary's future inherited IRA withdrawals.
For example, imagine a parent dies in September after taking only part of their required annual distribution.
The beneficiary may need to address the remaining amount for that year before focusing on the longer-term distribution strategy.
The IRS generally calculates the year-of-death RMD as though the original owner had lived for the entire year. IRS
Winnie's tip: Ask the IRA custodian for the original owner's distribution history and confirm whether the final-year RMD was satisfied. Don't assume the account balance tells the whole story.
6. One More Tax Detail: Inherited IRA Withdrawals Before Age 59½
Here's something beneficiaries may find reassuring.
Normally, withdrawing money from your own traditional IRA before age 59½ can trigger a 10% additional early-distribution tax unless an exception applies.
But distributions made to a beneficiary because of the original IRA owner's death generally qualify for an exception to that additional tax.
That doesn't mean the withdrawal is income-tax-free.
Traditional inherited IRA distributions are generally taxable as ordinary income to the extent they represent pre-tax amounts.
It simply means the additional 10% early-distribution tax generally doesn't apply to qualifying inherited IRA withdrawals.
This distinction can matter for beneficiaries who inherit retirement accounts while they're still working and younger than 59½. IRS
7. What About an Inherited Roth IRA?
Inherited Roth IRAs generally receive different tax treatment.
Because original Roth IRA owners aren't required to take RMDs during their lifetimes, many non-spouse beneficiaries subject to the 10-year rule can leave an inherited Roth IRA invested during years one through nine.
The account generally must still be emptied by the tenth-year deadline.
Qualified Roth IRA distributions are generally tax-free. However, the five-year holding requirement can affect whether distributed earnings are taxable.
That means inherited Roth IRA planning may involve different considerations from inherited traditional IRA planning.
The account type matters.
So does the beneficiary's classification.
8. Five Questions Worth Asking Before Your Next Distribution
For anyone who has inherited an IRA, I think these questions can help make the conversation more productive:
1. What is my actual distribution deadline? Confirm the year of death and the rules that apply to your beneficiary status.
2. Do I need to take annual RMDs?The answer may depend on whether the original owner died before or after their required beginning date.
3. Was the original owner's final RMD completed? An outstanding year-of-death distribution may need attention.
4. What might my income look like over the next ten years? Retirement, career changes, bonuses, or other events could affect the tax consequences of withdrawals.
5. What happens if I withdraw only the required minimum?
Project the remaining balance and potential tax impact in year ten.
One additional consideration: Missing an applicable RMD can result in an excise tax, generally 25% of the shortfall, potentially reduced to 10% if corrected within the permitted period.
Certain corrections may qualify for a waiver. IRS
A Final Thought From Winnie
When I think about my recent conversation with this client and his wife, I'm reminded that inheriting an IRA is rarely just about the account balance.
Someone worked for those savings.
Made decisions over many years.
And eventually left them to someone they loved.
Now, the next generation has decisions to make.
The university research reminds us that inherited wealth doesn't automatically translate into lasting financial security.
And the Vanguard analysis suggests that withdrawal timing can make a meaningful difference in potential tax outcomes.
For families navigating an inherited IRA, understanding the rules is an important first step.
But understanding how those rules fit into your broader financial life may be just as valuable.
Ten years may sound like plenty of time. But the decisions made in year one can influence what happens in year ten.
At Sun Group Wealth Partners, we welcome conversations about how inherited retirement accounts may fit into a family's broader retirement and tax planning.
Because an inheritance isn't simply money received.
It's also a responsibility to consider what comes next.
Sources:
IRS guidance
Research
Cory Thompson, University of Alabama, and Russell James III, Texas Tech University. Dissipation of Inheritance Windfalls and the Case for Time-Phased Transfers: An Empirical Assessment from HRS Data. Financial Services Review, March 31, 2026. Read the study.
Vanguard. How to Minimize Taxes on Inherited IRA Distributions, September 12, 2024. Read the analysis.
Additional reading
This article provides general educational information and is not individualized investment, tax, or legal advice. Inherited IRA rules depend on the original owner's date of death, beneficiary classification, account type, and other circumstances.
Investment returns are not guaranteed, and investing involves risk, including possible loss of principal. Consult qualified tax and financial professionals regarding your circumstances. Subject to applicable compliance review before publication.
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