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Mom’s IRA, about $400,000, is now yours. The bank says you have 10 years to take it all out, and you might owe a withdrawal every year along the way. What do you actually have to do?
Let’s make it concrete with a hypothetical. Say you’re Karen: You’re 58, still working, and your mother passed away last year at 82. She’d been taking her required withdrawals for years. Now the account is yours, and so is a set of IRS rules most people have never heard of.
This isn’t a rare situation. Cerulli Associates projects $124 trillion in wealth will change hands through 2048, with $105 trillion of it going to heirs. (1) A lot of that will be sitting in IRAs and 401(k)s.
And the rules for inherited retirement accounts are some of the easiest to get wrong. For most people who aren’t a spouse, the whole account must be emptied by the end of the 10th year after the owner’s death. (2)
Miss a required withdrawal, and the IRS can hit you with a 25% excise tax on the amount you didn’t take. (3)
Vanguard found that nearly 7% of IRA investors missed a required withdrawal in 2024, with an average penalty of more than $1,100. (4)
I’ve been a CPA since 1981, and inherited IRAs are where I see smart people make expensive mistakes. Here’s what Karen needs to know, and what I’d do in her shoes.
1. Find out which rulebook applies to you
The first question is who you are to the person who died.
A surviving spouse gets the most flexibility. A spouse can generally treat an inherited IRA as their own or roll it into their own IRA. (5)
A few other heirs are “eligible designated beneficiaries” with more lenient rules: the owner’s minor child, a disabled or chronically ill person, or someone not more than 10 years younger than the owner. (2)
Everyone else, including most adult children like Karen, falls under the 10-year rule. (2)
2. If Mom was already taking withdrawals, you have to keep going
This is the trap. Under the 10-year rule, you’d think you could leave the money alone for nine years and take it all in year 10.
Not if the original owner had already reached the age when required withdrawals begin. In that case, you generally have to take an annual required minimum distribution in years one through nine, then empty whatever’s left by the end of year 10. (6)
The IRS waived penalties for missed annual withdrawals for a few years while it finalized the rules. That grace period is over. The final rules apply to required distributions for 2025 and later. (7)
If you inherited an IRA in the past few years and haven’t taken anything out, talk to your IRA custodian and a tax pro now, before Dec. 31.
3. If you miss one, fix it fast
The penalty for a missed required withdrawal is 25% of the amount you should have taken. But it drops to 10% if you correct the mistake in a timely way, generally within two years. (3)
Take the missed amount as soon as you discover the error, and ask your tax preparer about reporting it properly. The worst move is ignoring it.
4. Plan the withdrawals around your tax bracket
Every dollar you pull from an inherited traditional IRA is generally taxable income. Dump $400,000 into a single year, and a big chunk could be taxed at 32% or higher.
For 2026, the 22% bracket for single filers runs from $50,400 to $105,700. The 24% bracket runs up to $201,775. (8)
For Karen, spreading withdrawals over 10 years means roughly $40,000 a year plus growth. That could keep much of the money out of the higher brackets. Taking more in a low-income year, such as after she retires but before Social Security starts, can be smarter still.
This is exactly the kind of multiyear tax planning where a good advisor pays for themselves.
If you’re inheiriting, or encountering another complex situation, this is when an extra pair of expert eyes can really come in handy. These days it’s easy to find one. For example, SmartAsset matches you, free, with up to three fiduciary advisors — legally required to put your interests first.
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5. Inherited a Roth? The rules are friendlier
If Mom’s account was a Roth IRA, the 10-year deadline to empty it still generally applies. (6)
But because Roth owners don’t have to take required withdrawals during their lifetimes, Roth heirs generally don’t face annual withdrawals in years one through nine, and qualified withdrawals are tax-free. (6)
The smart move is often to let an inherited Roth grow for as long as the rules allow, then take the money near the end of the 10 years.
6. Don’t hand your own kids the same headache
Here’s the lesson Karen should take from all this: The account you leave your kids can come with a tax bill and a deadline attached.
Two tools can make it easier on them. First, life insurance. A death benefit generally isn’t taxable income to the people who receive it, which makes it a clean way to leave money to heirs.
If anyone depends on you, Money's Life Insurance Comparison shows quotes from top insurers side by side in minutes — free, with no obligation. Rates for identical coverage can vary widely, so comparing pays. Compare your rates here.
Second, an up-to-date estate plan. Your IRA beneficiary form controls who gets the account, but a will or trust covers everything else and can spell out how heirs inherit.
A will locks in exactly who gets what, and you can get one in minutes for $199. A trust goes further, controlling how and when heirs inherit, starting at just $499.
The bottom line
Inheriting an IRA feels like a gift, and it is. But it comes with a clock, and for many heirs, a yearly withdrawal that’s easy to forget.
If you’re Karen, don’t panic and don’t cash it all out. Figure out which rules apply, take any required withdrawals on time, and spread the taxes over the years you’re allowed.
Your parents spent decades building that money. Don’t hand the IRS a bigger piece of it than the law requires.
Sources: 1. Cerulli Associates; 2. IRS; 3. IRS; 4. TheStreet; 5. IRS; 6. Kiplinger; 7. IRS; 8. IRS
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