How the inherited retirement account ten year rule works
Research notice: Based on primary sources linked below. Core authorities include the Internal Revenue Code, Treasury regulations and IRS Publication 590 B. Ask the account administrator and a qualified tax adviser to confirm beneficiary classification, the applicable distribution rules and any required filing before acting.
Common questions
Must an adult child generally empty an inherited account within ten years?
Generally yes, if the adult child is a designated beneficiary but not an eligible designated beneficiary. For a defined contribution plan or IRA whose owner died before the entire interest was distributed, the account must be emptied by the end of the tenth year after death. The deadline is the end of the calendar year containing the tenth anniversary of the owner's death.
Annual distributions are also due in years one through nine if the owner died on or after the required beginning date. The final payout deadline applies whether or not the owner had begun lifetime distributions. Only eligible designated beneficiaries may use the life expectancy exception to continue payments beyond that deadline.
Review the beneficiary classification section before applying these rules to an adult child.
Are annual withdrawals required in years one through nine?
No distribution is required in years one through nine when an IRA owner died before the required beginning date and the ten year rule applies. The final payout deadline above still applies. For death on or after that date, see the annual distribution requirement in the same answer.
What happens in the tenth year if the owner died before the required beginning date?
When the owner died before the required beginning date and the ten year rule applies, the entire remaining entitlement in the calendar year containing the tenth anniversary is an RMD and is ineligible for rollover. Earlier distributions are eligible for rollover only if all other requirements are met, including the separate nonspouse restrictions below.
For a nonspouse who acquires an IRA by reason of the owner's death, amounts received from that inherited IRA cannot be rolled over. From an employer plan, money can move by direct trustee to trustee transfer to an inherited IRA, which remains subject to the RMD rules. Spouse beneficiaries are outside this nonspouse restriction.
The owner's death timing determines whether an unpaid lifetime RMD is due that year
If the owner died on or after the required beginning date, any unpaid part of that year's lifetime required minimum distribution must be paid to the beneficiary or beneficiaries during that year. An owner who died before the required beginning date has no year of death RMD. The applicable beneficiary payout rule governs instead.
A beneficiary's annual required minimum distribution depends on the account balance and denominator
For an individual account under a defined contribution plan when an annual RMD applies, the minimum generally equals the applicable account balance divided by the applicable denominator. Both must be determined under the regulation's applicable rules. The calculation remains subject to the final payout deadline, and the RMD cannot exceed the entire balance on the distribution date.
A beneficiary's annual RMD must be distributed by the end of the distribution calendar year. Ask the administrator or tax adviser to confirm the applicable balance and denominator.
If distributions exceed the RMD for a distribution calendar year, the excess creates no credit against an RMD in a subsequent calendar year.
Traditional IRA withdrawals can include taxable income and inherited basis
For a nonspouse inheriting a traditional IRA, tax generally arises when distributions are received. The portion included in income is taxed as ordinary income. If the decedent had basis from nondeductible contributions, that basis remains with the inherited IRA.
Inherited basis cannot be combined with basis in the beneficiary's own traditional IRAs or traditional IRAs inherited from other decedents. A surviving spouse who elects to treat the inherited IRA as their own is excepted from that separate basis restriction. If both the inherited IRA and the beneficiary's own IRA have basis and both make distributions, separate Forms 8606 are required.
Payments made to a beneficiary or the owner's estate in that capacity on or after the owner's death qualify for the death exception to the 10% additional tax on early distributions. That exception does not establish an income tax exclusion. A spouse who elects to treat an inherited traditional IRA as their own may face the additional tax on later withdrawals before age 59½.
The account's beneficiary status sets the rule
A designated beneficiary is an individual designated by the owner or under the plan. Receiving property under a will does not make someone a beneficiary designated under the plan without that designation. Subject to the separate trust look through rules, a nonindividual such as an estate is not a designated beneficiary. Naming a nonindividual generally means the account is treated as having no designated beneficiary, even if individuals are also named.
Eligible designated beneficiary status is determined at the owner's death. The categories are a surviving spouse, a minor child of the owner, a disabled or chronically ill individual, and an individual not more than ten years younger than the owner. Chronic illness requires certification of an indefinite, lengthy inability.
A child of the owner stops being an eligible designated beneficiary on the child's twenty first birthday. Any remaining interest subject to that child's life expectancy exception must be distributed within ten years after that date.
When there is no designated beneficiary and the owner died before the required beginning date, the entire account must be distributed by the end of the calendar year containing the fifth anniversary of death. If the owner instead died on or after the required beginning date with no designated beneficiary, annual payments use the owner's remaining life expectancy.
A surviving spouse may elect to treat an inherited IRA as their own only when the spouse is the sole beneficiary and has an unlimited right to withdraw. Naming a trust as beneficiary fails that requirement even if the spouse is the trust's sole beneficiary.
Questions to confirm with the account administrator
- Which account type and beneficiary classification apply?
- Did the owner die before, on or after the required beginning date?
- Was any required lifetime distribution still unpaid at death?
- What is the final payout year, and are annual distributions required before it?
- Which balance and denominator apply to any annual RMD?
If a required distribution was missed
The missed RMD excise tax is generally 25% of the distribution shortfall. It is reduced to 10% if, during the statutory correction window, the taxpayer receives the shortfall from the same plan and submits a return reflecting the reduced tax.
The correction window begins when the shortfall tax is imposed. It ends at the earliest of mailing a deficiency notice, assessment, or the last day of the second taxable year beginning after the shortfall tax year. The IRS may waive the tax if the taxpayer establishes reasonable error and reasonable steps to remedy the shortfall.
Form 5329 addresses additional taxes on retirement accounts. A reasonable error waiver request requires an explanatory statement and filing the form under the instructions applicable to the reporting year. The taxpayer must show reasonable error and reasonable corrective steps. The IRS reviews the information and decides whether to grant the request.