Inherited IRAs: RMD rules for IRA beneficiaries | Vanguard (2024)

FAQs

What are the RMD rules for beneficiary of inherited IRAs? ›

For non-spouse beneficiaries required to follow a 10-year life expectancy withdrawal schedule, meaning you inherited from someone who passed away in 2020 or later, and that person had begun taking RMDs, in order to avoid an IRS missed RMD penalty of up to 25%, withdrawals must begin no later than December 31, 2025.

(If the death occurred in 2019 or earlier, the 10-year rule was a five-year rule.) Generally, spouse beneficiaries may wait until the end of either the 10-year period to make withdrawals, but proposed IRA guidance may require an annual payment for some beneficiaries in 2024 and later.

An inherited IRA can boost your finances, but new IRS rules may mean a tax headache. If you inherited a retirement account in the past several years, it's likely you'll have to take distributions and pay taxes on all that money within 10 years, according to new, finalized IRS rules.

The successor beneficiary will need to liquidate the account by December 31st of the 10th year following the death of the beneficiary. The successor beneficiary's distribution obligation is determined by the original IRA holders age at death.

According to final RMD regulations issued on July 18, 2024, certain spouse beneficiaries who must begin taking beneficiary distributions in 2024 are eligible to calculate their 2024 RMD based on the Uniform Lifetime Table (vs. the Single Life Table), thereby reducing their minimum distribution amount for the year.

Also sometimes called a beneficiary IRA, an inherited IRA is an account that is opened when someone inherits an IRA after the original owner dies.

However, for 2024 and later years, RMDs are no longer required from designated Roth accounts. You must still take RMDs from designated Roth accounts for 2023, including those with a required beginning date of April 1, 2024. You can withdraw more than the minimum required amount.

There are a few things you can do to avoid paying taxes on an inherited IRA. The most obvious thing is to not take a lump-sum distribution. If you inherit the IRA from your spouse, wait until the required minimum distributions begin or take distributions based on your own life expectancy.

If an RMD deadline is missed, the account owner will owe the IRS an excise tax on the shortfall. The penalty may be waived by the IRS if you can show that the shortfall was due to a reasonable error and that you are taking steps to remedy it.

Take a lump-sum distribution

As the beneficiary, you may distribute the account assets in a lump sum without facing a 10% early withdrawal penalty. (If you inherit a Roth IRA, the account must have been open for at least five years to avoid paying a penalty.)

Who is exempt from the 10 year rule when inheriting an IRA? ›

The 10-Year Rule for Inherited IRAs

This applies to surviving spouses or minor children (until age 21), the chronically ill or disabled, and people who are not more than 10 years younger than the decedent. They can still do stretch IRAs. Individuals who inherited IRAs before 2020 are also exempt.

The New Rules

Beginning January 1, 2025, most non-spousal beneficiaries must take an RMD from their inherited IRA if the decedent is of RMD age. The caveat is that these rules are retroactively applied to accounts inherited in 2020 and beyond when the SECURE Act took effect.

The IRS has just waived some Inherited IRA RMDs again for 2024. Even if you are not technically required to make a withdrawal, it may still make tax sense to make a distribution in 2024.

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). An RMD may be required in years 1-9 when the decedent had already begun taking RMDs.

How QCDs are made: Qualified charitable distributions are made directly to the eligible charity from a traditional IRA, inherited IRA, inactive Simplified Employee Pension (SEP) plan and inactive Savings Incentive Match Plan for Employees (SIMPLE) IRAs.

If you inherit a Roth IRA, you're free of taxes. But with a traditional IRA, any amount you withdraw is subject to ordinary income taxes. For estates subject to the estate tax, inheritors of an IRA will get an income-tax deduction for the estate taxes paid on the account.

What changed under SECURE 2.0? The SECURE Act eliminates the stretch IRA option and now requires most non-spouse beneficiaries to take RMDs ratably from accounts inherited from owners who died after 2019 within 10 years after the account owner's death.