Updated May 2026

Inheriting an Individual Retirement Account (IRA) can create both opportunity and complexity. While these accounts can provide long-term financial flexibility, the rules surrounding inherited retirement accounts have changed significantly in recent years. Misunderstanding those rules can lead to unnecessary taxes, missed planning opportunities, and even IRS penalties.

If you’ve recently inherited an IRA—or may in the future—it’s important to understand how distribution rules, taxes, and timing decisions might affect your financial picture.

If you’re just beginning to navigate inherited assets, you may also want to start with our overview article: Understanding Inherited Assets: What to Know Before You Make Financial Decisions

Key Takeaways

• Most non-spouse beneficiaries must fully distribute an inherited IRA within 10 years.
• Withdrawals from inherited traditional IRAs are generally taxed as ordinary income.
• Taking too much too quickly can increase taxes, Medicare premiums, and other income-related costs.
• Strategic distribution planning may help reduce the overall tax impact.
• The rules differ for spouses, Roth IRAs, and certain eligible beneficiaries.

Inherited IRA Planning Is Part of a Bigger Financial Picture

For many, inheriting an IRA happens during an emotionally difficult season of life. Alongside grief and family transitions, beneficiaries are often suddenly navigating estate administration, tax questions, investment decisions, and unfamiliar financial responsibilities.

That’s one reason inherited IRA decisions deserve careful consideration. The account itself is rarely an isolated issue—it’s often one piece of a much larger financial transition.

Before making withdrawal decisions, it can be helpful to step back and evaluate how the inherited IRA fits into your overall financial plan, tax strategy, and long-term goals.

The Key Rule: The 10-Year Distribution Window

For many years, inherited IRAs could be “stretched” over a beneficiary’s lifetime, allowing distributions to occur gradually over decades. The SECURE Act significantly changed that approach for most non-spouse beneficiaries.

Today, many people who inherit a traditional or Roth IRA from someone other than a spouse must fully distribute the account within 10 years of the original owner’s death. For traditional IRAs, those withdrawals are generally taxed as ordinary income.

The rules can become more nuanced depending on several factors, including the type of IRA inherited, whether the original account owner had already started taking required minimum distributions,  and the beneficiary’s relationship to the original owner. IRS guidance has also continued to evolve in recent years, which has added confusion for many families trying to navigate these accounts on their own.

Because of these complexities, inherited IRA decisions are often more strategic than many people initially realize.

Why Timing Matters

One of the biggest misconceptions around inherited IRAs is that the primary goal is simply withdrawing the money before the 10-year deadline. How and when distributions are taken can significantly affect your broader tax picture.

Inherited IRA withdrawals are generally added to your taxable income in the year they’re taken. A large withdrawal could unexpectedly result in higher taxes..

For those in a higher tax bracket, large distributions may even affect future Medicare premiums through Income-Related Monthly Adjustment Amount (IRMAA) surcharges. They can also impact eligibility for certain deductions, credits, or other tax-sensitive planning opportunities.

As a result, many beneficiaries benefit from taking a more measured approach—spreading distributions over multiple years and coordinating withdrawals alongside other financial decisions. Someone nearing retirement, transitioning careers, or expecting lower-income years in the future may have opportunities to manage those distributions more efficiently.

Common Mistakes to Avoid

Waiting Until the Final Years

Some beneficiaries avoid distributions for several years, only to realize later the remaining balance has grown substantially and must still be distributed by the deadline. This can compress taxable income into a very short window.

Ignoring Overall Tax Planning

Inherited IRA decisions shouldn’t happen in isolation. The timing and size of distributions may be more effective when evaluated alongside factors such as:

• Other investment income
• Business income
• Retirement timing
• Stock option exercises
• Charitable giving strategies
• Capital gains planning

Assuming Roth IRAs Work the Same Way

While inherited Roth IRAs are still subject to the 10-year rule in many cases, qualified withdrawals are generally tax-free and there is no annual required minimum distribution. This creates a different planning opportunity than inheriting a traditional IRA.

Missing Required Distributions

IRS guidance around annual distribution requirements has evolved in recent years. Missing a required distribution may result in penalties, though relief has been issued in some situations. Staying current on the rules matters.

Strategic Opportunities for Beneficiaries

While inherited IRAs often create tax complexity, they can also create meaningful planning opportunities when approached strategically. Planning for an inherited IRA can be coordinated with broader financial strategies, including charitable giving, Roth conversions, retirement income planning, or long-term investment decisions. The right approach depends on the size of the inherited account, current and future income expectations, and the beneficiary’s overall financial goals.

Thoughtful coordination can help preserve flexibility while minimizing unnecessary tax impact over time.

Frequently Asked Questions

Are inherited IRAs taxable?

Usually, yes. Distributions from inherited traditional IRAs are generally taxed as ordinary income. Qualified withdrawals from inherited Roth IRAs are typically tax-free.

Do I have to take distributions every year?

In most cases, yes. Depending on the circumstances and current IRS guidance, annual required minimum distributions often apply during the 10-year window.

Can I roll an inherited IRA into my own IRA?

Generally, only spouses can treat an inherited IRA as their own or roll it into their personal IRA.

What happens if I don’t withdraw the funds within 10 years?

Failing to satisfy inherited IRA distribution requirements can result in IRS penalties and additional tax consequences.

Should I cash out an inherited IRA immediately?

While some beneficiaries choose immediate distribution, spreading withdrawals strategically over time may help reduce taxes and preserve flexibility.

Does the 10-year rule apply to inherited Roth IRAs too?

Often, yes. However, qualified Roth IRA withdrawals are generally tax-free, which can create more flexibility around timing decisions.

Final Thoughts

For some, inheriting an IRA can feel overwhelming, especially while navigating the emotional and financial responsibilities that often come with a loss. But thoughtful planning can help you make informed decisions and avoid unnecessary taxes over time.

Understanding the rules—and coordinating inherited IRA decisions with your broader financial picture—can make a meaningful difference in preserving the value of what you’ve inherited.

Join Us June 23 for Navigating Inheritance with Confidence

Whether you recently inherited assets, expect to in the future, or want to prepare your family for a wealth transition, join us for practical guidance and clarity for your next steps at our upcoming educational Ripple Event.

June 23, 2026 | 5:30 – 6:30 p.m.

Ripple Space in the Hurley Building