SECURE 2.0 Inherited IRA Rules: What Beneficiaries Must Do in 2025 and Beyond

If you inherited an individual retirement account from someone who died after December 31, 2019, the rules governing what you must do with that account have been in a state of prolonged uncertainty. The SECURE Act changed the landscape. IRS guidance arrived slowly and in pieces. Penalties were repeatedly waived while regulators finished their work.

That period of grace ended. In July 2024, the IRS issued final regulations. Starting in 2025, the rules have teeth.

What Changed Under the SECURE Act

Before the SECURE Act took effect, most non-spouse beneficiaries who inherited an IRA could stretch distributions over their own life expectancy. A 45-year-old beneficiary inheriting a substantial IRA from a parent could take small distributions for decades, allowing the bulk of the account to continue growing tax-deferred. This "stretch IRA" strategy was a standard tool in estate planning.

The SECURE Act eliminated the stretch for most non-spouse beneficiaries. In its place came the 10-year rule: the entire inherited account must be distributed by the end of the tenth year following the year of the original owner's death. The annual income implications of this change are significant—what was once spread over a lifetime is now compressed into a decade.

The Annual RMD Requirement Within the 10 Years

The SECURE Act's statutory language was ambiguous about whether beneficiaries could take nothing during the first nine years and withdraw everything in year ten—a strategy that might minimize distributions in higher-income years. The IRS's final regulations resolved that ambiguity decisively.

If the original IRA owner had already started taking required minimum distributions before death, the inheriting beneficiary must also take annual minimum distributions during each year of the 10-year period. They cannot defer all distributions to the final year.

This applies to what the IRS calls non-eligible designated beneficiaries—typically adult children, siblings, and other non-spouse beneficiaries who do not meet the special conditions that apply to minor children, disabled individuals, chronically ill individuals, or individuals within 10 years of the decedent's age.

For beneficiaries who inherited from owners who had not yet begun RMDs, there is more flexibility. Annual distributions are not required during the 10-year window, although the entire account must still be emptied by year ten.

The Surviving Spouse Exception

Surviving spouses retain more favorable treatment than other beneficiaries. They can treat an inherited IRA as their own, rolling it into their own account and deferring distributions until their own RMD beginning age. They can also maintain it as an inherited IRA with distribution rules that may be more favorable depending on their age relative to the deceased spouse.

Beginning in 2024, the SECURE 2.0 Act introduced an additional option for surviving spouses: the ability to use the deceased spouse's age to calculate RMDs if that age is younger—a provision that benefits older spouses who inherit from younger partners.

What Beneficiaries Should Do Now

If you inherited an IRA after 2019 and have not been taking annual distributions, the most urgent step is determining what you owe for 2025. The calculation starts with the December 31, 2024 account balance divided by the beneficiary's remaining life expectancy factor from the IRS's Single Life Expectancy Table—adjusted based on when the inheritance began.

The penalty for missing an annual distribution is a 25 percent excise tax on the amount you should have withdrawn. That penalty is reduced to 10 percent if you correct the shortfall within a two-year correction window.

Because inherited IRA distributions count as ordinary income, planning matters. Larger distributions in high-income years can push you into higher brackets, affect your eligibility for tax credits, increase your Medicare premiums, and raise the percentage of Social Security benefits subject to tax. Working with a tax advisor before year-end allows you to take distributions in the most tax-efficient manner possible across the full 10-year window.

The Estate Planning Implication

For account owners who are still alive, the inherited IRA rule changes have reshaped estate planning conversations. The compressed 10-year window means that large pre-tax IRA balances are a less attractive inheritance than they once were for non-spouse beneficiaries—particularly if those beneficiaries are in high income-tax brackets.

This has accelerated the interest in Roth conversions among account owners who want to leave tax-free assets rather than pre-tax ones. A Roth IRA inherited under the same 10-year rule generates no taxable distributions, since qualifying withdrawals from inherited Roth IRAs are income-tax-free. Gifting strategies, charitable remainder trusts, and direct charitable giving from pre-tax IRAs are also being revisited in light of the changed landscape.