Are there exceptions to the 10-year rule?
Asked by: Dr. Devon Dickinson DVM | Last update: March 16, 2026Score: 4.2/5 (45 votes)
Yes, there are significant exceptions to the 10-year rule for inherited retirement accounts, primarily for "Eligible Designated Beneficiaries" (EDBs) like spouses, minor children (until age 21), disabled/chronically ill individuals, and those not more than 10 years younger than the original owner, allowing them to stretch distributions over their lifetime instead of emptying the account in 10 years. The 10-year rule itself, introduced by the SECURE Act, requires most non-spouse beneficiaries to empty an inherited IRA or 401(k) by the end of the 10th year after the owner's death, but these specific EDBs can often use life expectancy payouts.
What are the exceptions to the 10-year rule?
This 10-year rule has an exception for a surviving spouse, a child who has not reached the age of majority, a disabled or chronically ill person or a person not more than ten years younger than the employee or IRA account owner.
How do I avoid the 10-year rule for an inherited IRA?
You generally can't completely avoid the 10-year rule on an inherited IRA unless you're an Eligible Designated Beneficiary (EDB) like a spouse, minor child, disabled/chronically ill person, or someone within 10 years younger than the owner, allowing for life expectancy payouts. Other strategies involve spouses rolling it into their own IRA, using trusts like Charitable Remainder Unitrusts (CRUTs) for tax spreading, or strategic planning to take larger distributions within the 10 years to reduce the final year's tax hit, all requiring expert advice.
Do inherited IRAs have to be liquidated in 10 years?
The SECURE Act changed rules for distributing assets from an inherited IRA for non-spouses. Many non-spouse beneficiaries who inherit IRA assets from account owners who passed away in 2020 or later will need to withdraw the full balance within 10 years.
Who is exempt from the 10-year rule when inheriting an IRA?
The main exception to the inherited IRA 10-year rule allows certain "eligible designated beneficiaries" (EDBs) to use the old "life expectancy stretch" method instead, including the surviving spouse, minor children (until age 21), disabled or chronically ill individuals, and those not more than 10 years younger than the original owner. For everyone else, the entire account must be distributed by the end of the 10th year following the original owner's death, though the IRS clarified that annual Required Minimum Distributions (RMDs) aren't needed for the first nine years.
The Surprising Exception to the 10-Year Rule for Inherited IRAs
Can I gift an inherited IRA to my child?
The IRS explains that an IRA is “for the exclusive benefit of you and your beneficiaries.” While an IRA account itself cannot be gifted, you can remove the assets from your IRAs and then pass those assets on to other people as a gift.
What happens if you inherit an already inherited IRA?
If the owner on the inherited IRA was subject to the stretch rule, you as the successor beneficiary are now subject to the 10-year rule. If the owner of the Inherited IRA was subject to the 10-year rule, you have whatever time is remaining within that original 10 year window to deplete the account balance.
What is the best thing to do with inherited IRA?
The "best" thing to do with an inherited IRA depends on your situation, but common options include setting up an Inherited IRA (often the best for tax-deferred growth), taking a lump-sum payout (good for immediate large needs but creates a big tax bill), or, if eligible, a spousal rollover, while spouses also have options to treat it as their own. For non-spouses, the main path is often the 10-year rule, where the entire balance must be withdrawn by the end of the 10th year following the original owner's death, requiring annual distributions if the deceased was an "eligible designated beneficiary". Always consult a tax professional to navigate the complex rules.
What is the new law for inherited IRAs?
New inherited IRA rules, largely from the SECURE Act, require most non-spouse beneficiaries to empty inherited accounts within 10 years of the original owner's death, replacing the old "stretch" option, with a significant clarification in 2025: if the original owner had started taking Required Minimum Distributions (RMDs) before dying, annual RMDs are now generally required during the 10-year period, not just a lump sum at the end. Spouses retain their special status, allowing them to roll the IRA into their own account, but other "eligible designated beneficiaries" (like minor children) still have life expectancy payout options, notes Fidelity Investments.
What is the IRS 10-year rule?
The IRS "10-year rule" primarily refers to two different tax concepts: the Collection Statute Expiration Date (CSED), where the IRS generally has 10 years to collect assessed taxes, and the rule for Inherited IRAs under the SECURE Act, requiring most non-eligible beneficiaries to withdraw all funds within 10 years of the original owner's death. The collection period can be extended, while the inherited IRA rule has exceptions for spouses, minors, disabled individuals, etc., but the 10-year payout is standard for most others, with recent IRS relief extending past deadlines for certain missed distributions.
What is the ultimate inheritance tax trick?
The catchily-titled “normal expenditure out of income exemption” rule means that gifts made regularly out of normal monthly income, which do not reduce your standard of living, could escape the risk of later being subject to inheritance tax.
Is there any way to avoid paying taxes on an inherited IRA?
Roth IRAs are funded with after-tax dollars. That means the account holder has already paid taxes on the contributions when they were made. As a result, distributions from an inherited Roth IRA are tax-free if the account has been open for at least five years.
What is the 10-year stretch rule?
For an inherited IRA received from a decedent who passed away after December 31, 2019: Generally, a designated beneficiary is required to liquidate the account by the end of the 10th year following the year of death of the IRA owner (this is known as the 10-year rule).
What is the biggest RMD mistake?
The biggest RMD mistake is missing the deadline, leading to a costly 25% IRS penalty (which can be reduced to 10% if corrected within two years) on the amount not withdrawn, often due to confusion about the starting age (now 73/75) or just waiting too long. Other major errors include not knowing the correct start age, miscalculating the amount, failing to take withdrawals from each account, and not understanding rules for inherited IRAs or Qualified Charitable Distributions (QCDs).
Is the IRS waiving RMD for inherited IRAs?
Due to a series of IRS notices that waived beneficiary RMDs from 2021 to 2024, the 10-year rule does not take effect until 2025. But as noted, if the original account holder had already started RMDs, all money must be out of the account within the 10-year window, regardless of the specifics.
How can I minimize taxes on RMDs?
If you can't reduce your RMD, you may be able to reduce the tax bill on the RMD—that is, if you have made and kept records of nondeductible contributions to your traditional IRA. In that case, a portion of the RMD can be considered as coming from those nondeductible contributions— and will therefore be tax-free.
Do inherited Roth IRAs have to be distributed in 10 years?
Account type: The assets are transferred into an Inherited IRA held in your name. Money is available: At any time up until 12/31 of the tenth year after the year in which the account holder died, at which point all assets need to be fully distributed.
What is the disadvantage of naming a trust as an IRA beneficiary?
You generally should not transfer an IRA into a trust during your lifetime because it triggers immediate taxes and penalties, but you can name the trust as the beneficiary for controlled distribution after death; however, a poorly structured trust can cause faster taxation (e.g., 5-year rule instead of 10-year rule) and increased complexity for heirs, negating some benefits of the trust, so careful planning with an estate lawyer is crucial.
When did the 10 year RMD rule start?
The final regulations clarify changes brought about by the SECURE Act, which took effect in 2020, and the SECURE 2.0 Act, which was signed into law at the end of 2022. The new rules start taking effect on January 1, 2025 and apply to retirement plan participants, IRA owners, and their beneficiaries.
Do I have to pay taxes on an inherited IRA of my deceased father?
Best of all, with most inheritances, you won't owe any taxes. You won't even have to report them to the IRS. There is one important exception, however: If you inherit an individual retirement account (IRA), any taxes on IRA distributions that would have been owed by the deceased will now be owed by you.
Does an inherited IRA have to be cashed out?
Yes, if you inherit an IRA, you must take distributions, but the rules depend on your relationship to the original owner; most non-spouse beneficiaries (like adult children) must empty the account within 10 years, often requiring annual distributions starting in 2025, while spouses have more flexibility, potentially stretching withdrawals over their own lifetime. These inherited IRA rules, especially after the SECURE Act, mandate taking money out, which is taxed as ordinary income, with significant penalties for missing required minimum distributions (RMDs).
What is the inherited IRA rule change for 2025?
There is an inherited IRA change for 2025 that could trigger an IRS penalty of up to 25% before year-end. Starting in 2025, certain non-spouse heirs, including adult children, must start taking required minimum distributions while emptying their inherited IRA over 10 years.
What is the smartest thing to do with an inherited IRA?
The "best" thing to do with an inherited IRA depends on your situation, but common options include setting up an Inherited IRA (often the best for tax-deferred growth), taking a lump-sum payout (good for immediate large needs but creates a big tax bill), or, if eligible, a spousal rollover, while spouses also have options to treat it as their own. For non-spouses, the main path is often the 10-year rule, where the entire balance must be withdrawn by the end of the 10th year following the original owner's death, requiring annual distributions if the deceased was an "eligible designated beneficiary". Always consult a tax professional to navigate the complex rules.
What happens when an adult child inherits an IRA from a parent?
According to the SECURE Act 1.0, an inherited IRA must be paid out completely to non-spouse beneficiaries within 10 years of the death of the original IRA account holder (often referred to as the 10-year rule). Moreover, the beneficiaries must also take RMDs in the same period.
What are the three types of beneficiaries?
The three main types of beneficiaries in estate planning are Primary, who gets assets first; Contingent (or secondary), who gets assets if the primary can't; and Residuary, who receives any leftover assets after specific gifts are distributed, ensuring everything is covered. These designations provide clear instructions for distributing assets from wills, trusts, life insurance, and retirement accounts.