Inherited IRA Rules: What You Need To Know in 2025

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If you’ve just inherited an IRA, you’re likely asking what to do next — and how to avoid an unexpected tax bill. An inherited IRA lets you keep assets in a tax-advantaged account, but the clock starts on your withdrawal timeline the moment you inherit.

Below, you’ll find clear rules by beneficiary type, a simple 10-year planning framework and smart ways to lower taxes under current law.

Quick Take to GO: How Inherited IRA Rules Work

• Missed withdrawals trigger penalties — though SECURE 2.0 reduced the excise tax from 50% to 25% (and just 10% if corrected on time).
• Most non-spouse heirs must empty the account by the end of the 10th year after the original owner’s death.
• Spouses have the most flexibility — they can roll the funds into their own IRA or keep it as an inherited account.
• Eligible designated beneficiaries (EDBs), like minor children or disabled individuals, may stretch distributions over a lifetime.
• Roth IRAs can often be inherited tax-free, provided the account was open at least five years.

What Is an Inherited IRA?

An inherited IRA is a special account created when someone leaves their IRA to a beneficiary. You can’t add new contributions, but you must follow IRS rules to withdraw the money on a set timeline.

Traditional vs. Roth Inherited IRAs

• Traditional IRA: Withdrawals are taxed as ordinary income in the year you take them.
• Roth IRA: If the account has been open at least five years, withdrawals are tax-free.

Why the Rules Changed

Congress updated inheritance rules with the SECURE Act (2019) and SECURE 2.0 (2022). Lawmakers wanted to speed up tax collection, which is why the 10-year rule exists.

Key Updates:

• SECURE Act: Required most non-spouse heirs to follow the 10-year payout rule.
• SECURE 2.0: Lowered the penalty for missed RMDs to 25% (10% if corrected promptly) and raised the general RMD age to 73, with another increase to 75 for those born in 1960 or later.

Beneficiary Rules: Who You Are Matters

The rules you face depend on your relationship to the original account owner.

1. Spouse Beneficiaries

You can:

• Roll the account into your own IRA (delaying RMDs until age 73 or 75), or
• Keep it as an inherited IRA, which avoids early-withdrawal penalties if you’re under 59½.

2. Eligible Designated Beneficiaries (EDBs)

These include minor children, disabled or chronically ill beneficiaries and anyone less than 10 years younger than the decedent. EDBs may stretch distributions over life expectancy, making this group the most tax-advantaged after spouses.

3. Non-Eligible Designated Beneficiaries

Most adult non-spouse heirs fall here. You must follow the 10-year rule and often take annual RMDs in years 1-9 if the account owner died after starting their own RMDs.

4. Non-Designated Beneficiaries (Estates, Charities, Trusts)

If the owner died before their required beginning date (RBD), you’ll follow the 5-year rule. Otherwise, you may need to take annual distributions based on the “ghost” life expectancy rule.

Inherited IRA Distribution Rules by Beneficiary Type

Taxes on Inherited IRAs

• Traditional IRA: Withdrawals are taxed as income. Plan carefully to avoid getting pushed into a higher bracket.
• Roth IRA: Tax-free if the account has been open at least 5 years.
• No contributions allowed: You cannot add to an inherited IRA.
• No 10% penalty: You can withdraw at any age without the usual early-withdrawal penalty.

Investment Company Institute (ICI) data shows more than 40 million U.S. households own IRAs, making inherited accounts a common estate-planning issue. And with baby boomers expected to transfer over $84 trillion in wealth by 2045, inherited IRAs will impact more families than ever.

Real-World Example: Inheriting $500,000 in 2025

Say you inherit a $500,000 traditional IRA and fall in the 22% tax bracket. To comply with the 10-year rule, you could:

By spreading distributions across years, you avoid a lump-sum tax hit.

Smart Strategies to Minimize Taxes

1. Spread withdrawals across several years to avoid bracket creep.
2. Time distributions around other income sources, like Social Security or consulting work.
3. Consider Roth conversions (for original owners planning ahead) to leave heirs tax-free distributions.
4. Watch trust designations — some trigger the stricter 5-year payout rule.

According to the Joint Committee on Taxation, inherited IRAs generate billions annually in taxable distributions, so tax efficiency can save heirs thousands over a decade.

Common Mistakes to Avoid

• Missing the 10-year deadline
• Taking too much in one year and triggering a higher tax bracket
• Failing to title the account as an “inherited IRA”
• Overlooking required annual RMDs if the original owner had already started theirs

Final Take to GO: Make Your Inherited IRA Work for You

The bottom line: an inherited IRA can grow tax-advantaged, but only if you follow the right rules for your beneficiary type. Whether you’re a spouse with rollover options or a non-spouse subject to the 10-year rule, knowing your deadlines and tax impact can help you keep more of what you’ve been given.

To take the next step:

• Run your numbers with the GoBankingRates retirement calculator.
• Explore related guides like RMD rules and estate planning strategies to build a full picture.

With a smart withdrawal plan, you can turn an inheritance into lasting financial security.

Information is accurate as of Sept. 29, 2025.

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