Inherited an IRA? Your 10-Year Clock Started Ticking Under the SECURE Act

A software engineer, single, inherited his mother's traditional IRA in 2021, roughly $680,000. He did what felt responsible: he left it alone. No withdrawals, no distributions, just let it ride the way his mother's advisor had told her the stretch IRA would work for decades. When he walked into my office in early 2024 with a stack of Forms 5498 and a vague sense that something was off, the something was this: he had inherited under the SECURE Act, not under the old rules, and the account had to be fully emptied by December 31, 2031. Worse, because his mother had already been taking required minimum distributions before she died, he was also supposed to be taking annual RMDs inside that 10-year window. He had taken none. And he had a very good year coming, a big vesting event that would push him into the 35% bracket right when a lump-sum distribution would land.

That case is the whole SECURE Act inherited-IRA problem in one file, so let me walk through what happened to him and why it happens to almost everyone who inherits a retirement account these days.

The stretch IRA died for deaths after 2019

The SECURE Act of 2019 eliminated the lifetime "stretch" for most non-spouse beneficiaries who inherit an IRA or defined-contribution plan from someone who died after December 31, 2019. Under the old regime, an adult child could take distributions over their own life expectancy, sometimes 30 or 40 years, letting the account compound tax-deferred and pulling out small taxable amounts each year. The SECURE Act replaced that, for most heirs, with the 10-year rule under §401(a)(9)(H): the entire account must be distributed by the end of the tenth calendar year following the year of death.

My engineer's mother died in 2021. Year zero is the year of death, so the ten-year count runs 2022 through 2031, and the account has to hit zero by December 31, 2031. Nothing about the 10-year rule requires equal payments or any particular schedule across those years. That flexibility is real, and it is also the trap, because "you have ten years" reads to most people as "you have ten years to do nothing," which is exactly the wrong instinct.

Not every heir is on the 10-year clock

The 10-year rule applies to "designated beneficiaries," but the SECURE Act carved out a category called "eligible designated beneficiaries" (EDBs) under §401(a)(9)(E)(ii) who can still stretch over life expectancy. There are five: the surviving spouse; a minor child of the decedent (only until the child reaches the age of majority, then the 10-year clock starts); a disabled beneficiary; a chronically ill beneficiary; and any beneficiary not more than ten years younger than the decedent. That last one quietly covers a lot of sibling-to-sibling and partner-to-partner inheritances.

A surviving spouse has the widest set of options and usually the best ones, including rolling the account into their own IRA and treating it as their own, which resets the whole distribution framework. My client was none of these. He was an adult, non-disabled, more than ten years younger than his mother, the textbook designated beneficiary. Ten-year rule, full stop.

The RMD-within-the-10-years trap the IRS finalized in 2024

Here is the part that caught him, and caught a lot of practitioners too. The statute was silent enough on this point that for three years nobody was sure whether beneficiaries on the 10-year clock also had to take annual RMDs along the way, or whether they could simply drain the account any time before year ten. The IRS proposed regulations in 2022 taking the aggressive reading, then waived the penalty for missed 2021 through 2024 beneficiary RMDs in a series of notices (Notice 2022-53, Notice 2023-54, and Notice 2024-35). The final regulations under Reg. §1.401(a)(9)-5, published in July 2024, settled it.

The rule now turns on one fact: whether the person you inherited from had already reached their required beginning date and started taking RMDs before they died.

• If the decedent died before their required beginning date, there are no annual RMDs during the 10 years. You can pull nothing until year ten, or spread it however you like, as long as the account is empty by December 31 of year ten.
• If the decedent died on or after their required beginning date, meaning they were already taking RMDs, you must continue taking annual RMDs in years one through nine based on your own life expectancy, and then clean out whatever remains by the end of year ten.

My client's mother was 74 and had been taking RMDs. That put him squarely in the second bucket. Beginning in 2025, the penalty relief was gone, and he owed annual distributions on top of the year-ten drain. The missed-RMD excise tax under §4974 is now 25%, reduced to 10% if corrected within a two-year window, courtesy of SECURE 2.0. Not nothing, but survivable if you move.

Why leaving it alone is usually the expensive choice

The instinct to let an inherited IRA compound quietly is the one that costs the most, because every dollar in a traditional inherited IRA is ordinary income to you when it comes out, and the 10-year rule guarantees it all comes out inside a decade. Skip distributions for nine years and the entire balance, plus nine years of growth, lands in a single tax year. For anyone with a real salary, that is a fast trip into the 32%, 35%, or 37% bracket, and it can also trip the 3.8% net investment income tax threshold and inflate income-based Medicare premiums (IRMAA) if you are near that age.

For my engineer, the fix was not clever, it was arithmetic. We had already lost the 2022 through 2024 window to inertia, though the notices meant no penalty for those years. Starting in 2025 we layered his required annual RMD with additional voluntary distributions sized each year to fill out his current bracket without spilling into the next one, deliberately front-loading the years before his big equity vesting event rather than after it. Spreading roughly $680,000 plus growth across seven remaining tax years at controlled bracket levels, instead of dumping it in 2031, changed his projected lifetime tax on the account by a low-six-figure amount. We also filed Form 5329 to request abatement of the §4974 excise on the corrected shortfalls, with a reasonable-cause statement, because the statute and the shifting guidance gave us a genuine argument.

The moves that actually matter after you inherit

Three questions decide almost everything, and you want the answers before December 31 of the year after the death, because some choices harden once a distribution year closes.

1. Which bucket are you in? Determine whether you are an eligible designated beneficiary or an ordinary designated beneficiary. That single fact sets whether you stretch or face the 10-year rule.
2. Had the decedent started RMDs? Pull their age and distribution history. If they had reached their required beginning date, you owe annual RMDs inside the 10 years, and skipping them now carries the §4974 excise.
3. Is it a Roth? A beneficiary who inherits a Roth IRA is still bound by the 10-year rule, but Roth distributions are generally tax-free, so the strategy flips entirely: you often want to leave a Roth untouched for the full ten years and let it grow, then take it all in year ten with no tax cost.

Retitle the account correctly as an inherited IRA (an "Inherited IRA FBO [your name]"), never roll a non-spouse inherited account into your own IRA, and map the distribution schedule against your projected income for the whole decade, not just this year. This is the kind of planning that pairs well with an estate attorney and, if there is a trust named as beneficiary, absolutely requires one, because a trust beneficiary can accelerate the drain and change who the "designated beneficiary" even is. Tax outcomes here depend on your specific facts and the current-year figures, so confirm the numbers before you act.

Sources

• IRC §401(a)(9)(H) (10-year rule for designated beneficiaries)
• IRC §401(a)(9)(E)(ii) (definition of eligible designated beneficiary)
• IRC §4974 (excise tax on missed required minimum distributions; 25% / 10% corrected rate under SECURE 2.0)
• Treas. Reg. §1.401(a)(9)-5 (final regulations, July 2024)
• IRS Notice 2022-53, Notice 2023-54, Notice 2024-35 (waiver of beneficiary RMD penalties for 2021-2024)
• SECURE Act of 2019; SECURE 2.0 Act of 2022
• IRS Form 5329 (Additional Taxes on Qualified Plans); IRS Form 5498 (IRA Contribution Information)