You inherited an IRA. Now what?
How to avoid mistakes, minimize taxes, and make the most of what’s next
If you’ve inherited an IRA account, you’re not just dealing with a financial windfall, you’re stepping into a complicated intersection of taxes, timing, and legal rules.
The decisions you make now can impact you for years.
Let’s break it down in plain English.
Step one: Don’t touch anything yet
Your first move?
Pause.
Take a deep breath.
Then call your financial advisor.
If you cash out the account too soon, you could trigger a nasty tax bill.
Once the money leaves the IRA, there’s no undoing it.
This is especially true if you're still working.
Adding a large IRA withdrawal to your current income will create a large tax liability and possibly trigger Medicare premium surcharges in the future.
Why the rules changed
As recently as a few years ago, beneficiaries could “stretch” inherited IRA withdrawals over their lifetime.
That allowed smaller required distributions, lower tax bills, and more time for tax-deferred growth.
But that changed with the SECURE Act of 2019, and then again with SECURE 2.0 in 2022.
Now, if you’re a non-spouse inheritor, you typically have to empty the account within 10 years.
There are some exceptions (the decedent’s minor children, chronically ill beneficiaries), but for most adult children, siblings, or or other beneficiaries it’s 10 years.
But wait, there’s more...
If the original owner had already started required minimum distributions (RMDs), you must take annual RMDs during those 10 years.
Note: Due to initial confusion about this rule, the IRS waived the penalty for missed annual RMDs for non-spouse beneficiaries subject to the 10-year rule for the years 2021 through 2024. This relief was provided in a series of IRS notices and is intended to give taxpayers time to adjust to the new rules, which are expected to be enforced starting in 2025.
Otherwise, you can wait, but the whole account must still be emptied by the end of year 10 after the original account owner’s death.
Example 1: Daughter inherits her Mom’s IRA
Let’s say you inherit a $500,000 traditional IRA from your Mom.
She was 75 and had started RMDs.
You’re 53 and still working.
You now need to:
Take an RMD each year, calculated using the decedent’s life expectancy factor from the IRS Single Life Table (age at death), reduced by 1 each year for subsequent RMDs
Completely empty the account by year 10
If you pull $500,000 out in a single year to “just get it over with,” that $500K gets added to your income and will likely spike your tax bill by thousands.
A better approach is to spread withdrawals over the 10 years, taking just enough each year to meet IRS requirements.
Spouses get more options
If you’re the surviving spouse, you have more flexibility.
You can:
Roll the IRA into your own retirement account and treat it as your own - RMDs would apply to your age and life expectancy
Keep it as an Inherited IRA and delay RMDs until your late spouse would have turned 73 (the current RMD age in 2025) - if your spouse had already begun RMDs, you may be required to start distributions sooner
Choosing depends on your age, income needs, and whether you’re still working.
Example 2: Widow in her 60s inherits husband’s IRA
Let’s say your husband passes away at age 72 with a $300,000 traditional IRA.
You’re 62, still working, and don’t need the money yet.
Rolling it into your own IRA could let you delay withdrawals until you hit 73 (the current RMD start age), which helps reduce your current taxes.
Bottom line: There’s no one-size-fits-all.
The best choice depends on your personal tax profile and income needs.
What about Roth IRAs?
Roth IRAs follow the same 10-year rule for non-spouse heirs, but with a silver lining: no income tax on withdrawals.
That means you can let the Roth sit untouched for up to 10 years, then take it all out tax-free, assuming the account has been open at least five years.
The beneficiary can “adopt” the original account owner’s 5-year clock.
This makes inherited Roth IRAs incredibly powerful tools, especially for heirs in high tax brackets.
Naming your own beneficiaries
Once the account is in your name, you should name new beneficiaries.
This keeps the account from getting tangled up in probate and helps continue the tax-deferred legacy.
Be thoughtful here.
Naming your kids?
Consider how well they handle money.
Naming a trust?
Make sure it’s structured correctly. IRAs and trusts can be a tricky mix.
Don’t forget the penalties
Miss an RMD?
The IRS used to slap you with a 50% penalty.
That’s now down to 25%—and potentially just 10%, if you fix it fast.
Still, those are steep enough to make sure your calendar includes a recurring reminder.
Final thought
This article is designed to be a high-level overview.
The rules will be highly specific to your personal situation, and some technical details may not be covered here.
It is always best to consult with a financial advisor or tax professional before making any decisions.
Inheriting an IRA can be a financial blessing, but only if handled thoughtfully.
The rules have become more detailed, and mistakes can be expensive.
But with a little planning, you can honor your loved one’s legacy and make the most of this inheritance.
If this feels like a lot, it is.
But you don’t have to go it alone.
Reach out if you’d like help thinking through your options.
I’m here to walk beside you — not just through the rules, but through what this means for your life, your plan, and your peace of mind.
Any questions?
Let me know…
Visual guides
You might find the following visuals a helpful guide to the inherited IRA information above.
The first is for inherited traditional IRAs, and the second is for inherited Roth IRAs.
You can click each image below to access the PDF which you can download.
Please feel welcome to share this email and/or these visuals with others…
I appreciate your continued readership.
Please let me know if you have any feedback or suggestions for future essays.
Until next Wednesday,
Russ