The SECURE Act and the 10-Year Rule Explained
The SECURE Act of 2019 fundamentally changed how inherited IRAs work. Before 2020, non-spouse beneficiaries could "stretch" required minimum distributions over their own life expectancy — often 30, 40, or even 50+ years. This allowed the inherited assets to grow tax-deferred for decades.
The new law replaced the stretch IRA with a 10-year rule for most non-spouse beneficiaries. The entire inherited IRA balance must be distributed by December 31 of the 10th year following the original owner's death. SECURE 2.0 (passed in 2022) further clarified the rules and reduced the penalty for missed RMDs from 50% to 25%.
Who Is Subject to the 10-Year Rule?
The 10-year rule applies to non-eligible designated beneficiaries — which includes most adult children, siblings, friends, and other non-spouse individuals who inherit an IRA after 2019.
Eligible designated beneficiaries (EDBs) are exempt from the 10-year rule and can still use the stretch IRA:
- Surviving spouse — can also roll the inherited IRA into their own IRA
- Minor children of the decedent — stretch until age of majority (21 under IRS rules), then the 10-year clock starts
- Disabled individuals — as defined under IRC Section 72(m)(7)
- Chronically ill individuals — as defined under IRC Section 7702B(c)(2)
- Beneficiaries not more than 10 years younger than the decedent
Required Beginning Date (RBD) — Why It Matters
Whether annual RMDs are required during the 10-year period depends on whether the original IRA owner died before or after their Required Beginning Date (RBD). The RBD is April 1 of the year after the owner reached their RMD age: 70½ if born before July 1949, 72 if born July 1949 to 1950, 73 if born 1951 to 1959, and 75 if born 1960 or later. Someone who died during the year they reached that age had not yet reached their RBD.
- Owner died before their RBD: No annual RMDs are required during years 1-9. You can take distributions on any schedule you choose, as long as the account is fully emptied by year 10. This gives you maximum flexibility for tax planning.
- Owner died on or after their RBD: Annual RMDs are required in years 1-9, calculated using the IRS Single Life Expectancy Table (Table I from Publication 590-B). The remaining balance must be withdrawn in year 10. Missing an annual RMD triggers the 25% excise tax penalty.
Inherited Roth IRA: Special Rules
Inherited Roth IRAs are subject to the same 10-year rule, but with key advantages:
- No annual RMDs required regardless of when the owner died (since Roth IRAs have no RBD)
- All distributions are tax-free (assuming the original Roth IRA satisfied the 5-year rule)
- Optimal strategy is to defer — let the account grow tax-free for the full 10 years, then take the entire balance in year 10
Common Mistakes That Cost Thousands
- Not knowing about annual RMDs when the decedent died after RBD. Many beneficiaries assume they have 10 years with no requirements, not realizing that annual RMDs are mandatory if the original owner was already taking RMDs. The 25% penalty adds up.
- Taking the lump sum in year 10. Deferring all distributions to year 10 means taking a massive taxable distribution in a single year, which can push you into the 32% or 37% tax bracket. Spreading distributions across 10 years keeps more of your inheritance.
- Ignoring tax bracket coordination. Your inherited IRA distributions are taxable income. Taking larger distributions in years when your other income is lower (career transitions, sabbaticals, early retirement) can save thousands in taxes.
- Forgetting about state taxes. This calculator models federal taxes only. Most states also tax traditional IRA distributions. Factor in your state tax rate for a complete picture.
Distribution Strategy Comparison
This calculator compares three approaches:
- Minimum RMDs + Lump Sum Year 10: Take only the required annual RMDs (or nothing, if before RBD) in years 1-9, then withdraw the entire remaining balance in year 10. This maximizes tax-deferred growth but creates a large taxable event in the final year.
- Even Distribution: Withdraw roughly equal amounts each year, adjusted for account growth. This smooths your tax liability across all 10 years and avoids bracket spikes.
- Front-Loaded (Bracket Optimization): Take larger distributions early. Each year the calculator withdraws 1.5 times the room left in your current tax bracket, or the minimum needed to empty the account by the deadline if that is larger. Because it takes more than the room left, part of each withdrawal can be taxed in the next bracket up. This works well if you expect your income to rise in future years or if you want to reduce the account balance quickly to limit exposure to market downturns.
The 25% Excise Tax Penalty (Reduced from 50%)
SECURE 2.0 reduced the excise tax penalty for missed RMDs from 50% to 25% of the shortfall. If you correct the missed RMD within 2 years by filing Form 5329, the penalty is further reduced to just 10%. While this is a significant improvement, it's still a costly mistake:
- $50,000 missed RMD → $12,500 penalty (25%) or $5,000 if corrected (10%)
- $100,000 missed RMD → $25,000 penalty (25%) or $10,000 if corrected (10%)
Frequently Asked Questions
What is the 10-year rule for inherited IRAs?
Most non-spouse beneficiaries who inherit an IRA after 2019 must withdraw the entire balance by December 31 of the 10th year after the owner's death. This replaced the lifetime stretch IRA.
Are annual RMDs required during the 10-year period?
Only if the original owner died on or after their Required Beginning Date: 1 April of the year after they reached their RMD age (70½, 72, 73 or 75, depending on when they were born). If they died before that date, or the account is a Roth IRA, no annual RMDs are required — just empty the account by year 10.
What is the penalty for missing an inherited IRA RMD?
25% of the shortfall (reduced from 50% by SECURE 2.0). Correcting within 2 years via Form 5329 reduces it to 10%.
Do inherited Roth IRAs have RMDs?
No annual RMDs, but the 10-year rule still applies — the account must be emptied by year 10. All distributions are tax-free.
Can a spouse roll over an inherited IRA?
Yes. Surviving spouses have the unique option to roll the inherited IRA into their own IRA, effectively treating it as their own. This eliminates the 10-year rule and delays RMDs until the spouse reaches their own RBD (age 73, or 75 if born in 1960 or later).
What happens to a minor child's inherited IRA at age 21?
Minor children of the decedent can stretch RMDs using the life expectancy table until reaching the age of majority (21 under IRS rules). At that point the 10-year limit applies: the yearly life-expectancy minimums continue, and whatever is left must be distributed by December 31 of the year of the 10th anniversary of the 21st birthday.