If you inherited an IRA after December 31, 2019 — or you’re leaving one to your adult children — the rules have changed dramatically, and ignoring them is costing families thousands of dollars in unnecessary taxes. Under the SECURE Act and its 2022 follow-up, SECURE 2.0, most non-spouse beneficiaries must now drain the entire inherited IRA within 10 years of the original owner’s death. Worse, if the original owner had already started taking required minimum distributions (RMDs), heirs must also take annual withdrawals during those 10 years — not just a lump sum at the end. The IRS made this rule permanent for 2025 and 2026 after years of confusing delays, which means families who were waiting to see how things shook out now need to act.
What exactly changed with inherited IRA rules?
Before 2020, a non-spouse heir — say, your adult son or daughter — could “stretch” withdrawals from an inherited IRA over their entire lifetime. A 40-year-old inheriting a $500,000 IRA could spread those withdrawals (and the resulting income taxes) across 40-plus years. That strategy, known as the “stretch IRA,” is largely gone.
Today, most adult children, grandchildren, siblings, and other non-spouse beneficiaries fall into a category the IRS calls “non-eligible designated beneficiaries.” They face a hard 10-year deadline to empty the account. If the person who left them the IRA had already reached the age when RMDs were required (currently age 73), heirs must also take a distribution every single year during that 10-year window — not just whenever they feel like it.
The penalty for missing an annual RMD is steep: 25% of the amount you should have taken (though it drops to 10% if you fix the mistake quickly). After years of IRS waivers, those penalties are now fully in effect.
Who is still protected from the 10-year rule?
Not everyone faces the new 10-year drain. The IRS calls the following people “eligible designated beneficiaries,” and they can still stretch distributions over their lifetime:
- Surviving spouses — they have the most flexibility of all, including the option to roll the IRA into their own account entirely
- Minor children of the original account owner (though the 10-year clock starts once they reach adulthood)
- Disabled or chronically ill individuals (as defined by IRS rules)
- Beneficiaries who are no more than 10 years younger than the deceased
If you don’t fit into one of those groups, assume the 10-year rule applies to you and plan accordingly.
Why the 10-year rule creates a tax trap
Here’s where families really get hurt. Imagine your parent leaves you a $400,000 traditional IRA. You’re 55, still working, and earning $90,000 a year. If you withdraw that $400,000 evenly over 10 years, you’re adding $40,000 of taxable income each year — potentially pushing you into a higher federal tax bracket every single year of the decade.
But the trap gets worse when you consider Medicare. Your income two years prior determines what you pay for Medicare Part B (the standard premium in 2025 is $185 per month, but higher earners pay surcharges). Those surcharges, called IRMAA (Income-Related Monthly Adjustment Amount), kick in once your modified adjusted gross income exceeds $106,000 for a single filer or $212,000 for a married couple filing jointly. A large inherited IRA withdrawal in 2024 could raise your Medicare premiums in 2026 — a delayed hit many people never see coming.
Similarly, higher income can make more of your Social Security taxable. Up to 85% of Social Security benefits can be taxed at the federal level once your combined income crosses certain thresholds. An inherited IRA withdrawal can easily push you over those lines.
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How do you reduce the tax damage from an inherited IRA?
The good news: with some planning, you can soften the blow considerably.
1. Don’t wait until year 10. Many heirs procrastinate and then face a massive forced withdrawal in the final year. Spreading withdrawals strategically — taking more in lower-income years and less when income is high — can keep you in a lower tax bracket throughout.
2. Time withdrawals around your Social Security start date. If you haven’t claimed Social Security yet, the years before you claim are often your lowest-income years. Consider front-loading inherited IRA withdrawals in that window. (As a general rule, delaying Social Security to age 70 maximises your benefit — it grows by roughly 8% for each year you wait past full retirement age.)
3. Consider a Roth conversion strategy alongside the withdrawal. If you’re taking required inherited IRA distributions anyway, some financial planners suggest pairing that income with Roth conversions from your own traditional IRA in the same years — locking in today’s tax rates on your own savings while you’re already managing the inherited account tax hit.
4. Watch your IRMAA cliff. Plot out your expected income each year of the 10-year window and check it against Medicare IRMAA thresholds. Staying just below a surcharge tier could save you $500–$3,000 or more per year in Medicare premiums.
5. If you’re leaving an IRA to heirs, consider a Roth conversion now. Roth IRAs pass to heirs income-tax-free. While heirs still face the 10-year rule, withdrawals from an inherited Roth IRA are generally tax-free, eliminating most of the trap entirely.
What should you do right now?
If you inherited an IRA after January 1, 2020, check whether the original owner had started RMDs. If they had, you likely owe an annual distribution in 2026 — and missed years may need to be corrected. A tax professional or fee-only financial advisor can help you calculate the right amount and create a 10-year withdrawal plan that minimises your tax bill without triggering Medicare surcharges or making more of your Social Security taxable.
If you’re the one building wealth to pass on, now is the time to revisit your beneficiary designations and consider whether a Roth conversion makes sense for your situation. The inherited IRA trap is one of the most predictable financial hits families face — and one of the most avoidable with a bit of advance planning.
Frequently Asked Questions
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Frequently Asked Questions
What are the RMD rules for inherited IRAs in 2025 and 2026?
Most non-spouse heirs who inherited a traditional IRA after December 31, 2019 must empty the account within 10 years. If the original owner had already begun taking required minimum distributions (RMDs) before death, heirs must also take annual RMDs during that 10-year period. The IRS confirmed these rules are fully in effect for 2025 and 2026, and the penalty for missing an annual RMD is 25% of the amount that should have been withdrawn.
When should I claim Social Security to maximise my benefit?
Delaying Social Security until age 70 typically maximises your monthly benefit, because your payment grows by approximately 8% for each year you wait past your full retirement age (66 or 67, depending on your birth year). If you’re in good health and don’t need the income immediately, waiting often pays off significantly over a long retirement. However, if you’re managing large inherited IRA withdrawals, it may make sense to claim earlier in some cases — a financial advisor can model both scenarios for your specific situation.
How much of my Social Security benefit is taxable?
Up to 85% of your Social Security benefit can be subject to federal income tax, depending on your “combined income” (adjusted gross income plus nontaxable interest plus half your Social Security). Single filers with combined income above $34,000 and married couples above $44,000 may have up to 85% of benefits taxed. Large withdrawals from an inherited IRA can push your income over these thresholds, making careful timing important.
How do I avoid Medicare IRMAA surcharges?
IRMAA (Income-Related Monthly Adjustment Amount) surcharges are added to your Medicare Part B and Part D premiums when your income from two years prior exceeds certain thresholds — starting at $106,000 for single filers in 2025. To avoid surcharges, try to keep your modified adjusted gross income below those thresholds, especially in years when large inherited IRA withdrawals are planned. You can also appeal an IRMAA determination if your income dropped significantly due to a life-changing event like retirement.
What is the Medicare Part B premium for 2025?
The standard Medicare Part B premium for 2025 is $185.00 per month. However, higher-income beneficiaries pay more through IRMAA surcharges, which can push the monthly premium as high as $628.90 for individuals with incomes above $500,000. Because Part B premiums are based on income from two years earlier, a spike in income from an inherited IRA withdrawal today could increase your Medicare costs in two years.