Inherited IRAs: the 10-year rule and the penalty the IRS stopped waiving in 2025

If you inherited an individual retirement arrangement and you are not the spouse, you generally have ten years to empty it. Whether you also have to take something out each year depends on whether the original owner had reached their required beginning date.

What changed for 2025

The excise tax on a missed required minimum distribution is not new. What ended is the relief. The IRS announced that the final regulations it intends to issue on required minimum distributions apply for determining those distributions for calendar years beginning in 2025 and later, and for the earlier years it named it said it would not assert the excise tax where a specified distribution had not been taken.

Read those in that order: the tax already existed, the IRS held it back for the earlier years, and from 2025 the annual distribution has to be taken wherever the rules call for one. Nothing here is a new penalty. It is an old one that stopped being waived, which is a different thing and matters if you are looking back at a year you skipped.

The ten-year rule, stated exactly

A beneficiary who is not taking life expectancy payments must withdraw the entire balance by the last day of the year containing the tenth anniversary of the owner's death. The publication works the example this way: an owner who died in 2025 leaves the beneficiary until the end of 2035. Whatever is still sitting in the account after that day is exposed to the excise tax described below.

Who it applies to

Two cases. An eligible designated beneficiary who elects the ten-year rule, where the owner died before reaching their required beginning date. Or a designated beneficiary who is not an eligible designated beneficiary, whether or not the owner had reached that date.

The second case is the common one. An adult child inheriting a parent's account is almost always in it, which is why the ten-year clock is the version of this rule most people have heard of.

Eligible designated beneficiaries

The category covers the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, and any other individual who is not more than ten years younger than the owner. What it buys is life expectancy payments rather than the ten-year clock. For a minor child of the owner, the clock starts when the child reaches the age of majority, and the ten-year rule then applies to what is left.

A surviving spouse who is the sole designated beneficiary has a wider menu still: continue taking distributions as a beneficiary, or elect to treat the inherited account as their own. The life expectancy table used to figure each year's amount changes with that choice, and so do the consequences a decade later. It is worth an hour with a preparer rather than a decision made on a custodian's form.

The annual withdrawal inside the ten years

This is the part people miss, and folding it into the ten-year deadline is the mistake this article exists to prevent. They are two separate requirements, and one can apply without the other.

If the owner died on or after their required beginning date and you are a designated beneficiary, you base your required minimum distributions for the years after the year of death on the longer of your own single life expectancy or the owner's. If the owner died before that date and the ten-year rule applies, no distribution is required for any year before the tenth.

So which side of the required beginning date the owner was on decides the whole section. Establish that first: ask the custodian, and read Publication 590-B for what the required beginning date means for the account you inherited.

The penalty for missing one

Where distributions come to less than the required minimum for a year, an excise tax of 25% can apply to the amount that was not distributed as required. It is long-standing rather than new, which is worth repeating here: 2025 is when the IRS stopped holding it back, not when it arrived.

There is a way down. If, during the correction window, you take a distribution of the amount the tax is due on and file a return reflecting that tax, the rate falls to 10%. The window generally runs to the last day of the second taxable year beginning after the end of the year the tax was imposed, and it closes earlier if a deficiency notice is mailed or the tax is assessed. Form 5329 is where the tax on excess accumulations is reported. If the shortfall was a reasonable error and you have taken, or are taking, steps to remedy it, you can request that the tax be waived, with a statement explaining what happened.

What to do this year

Find the date of death and settle whether the owner had begun required distributions, then ask the custodian which table it is using and get the answer in writing. Set a reminder in December and keep the beneficiary paperwork where you can find it. Anything outside the cases above, including an inherited Roth arrangement, belongs with a preparer, because the rules there are not the ones set out here. The distributions themselves arrive on Form 1099-R.