Enforcement Date Approaches for Inherited IRA Beneficiaries

By: Angela M. Stockbridge, Esq.

A recent WSJ article highlights a critical alert for beneficiaries who inherited traditional IRAs after 2019: the window to take distributions is limited and time-sensitive. Under the post-SECURE Act guidance from the Internal Revenue Service, IRAs inherited by most non-spouse beneficiaries must be fully distributed within ten years of the original owner’s death. This is a sharp change from the old “stretch IRA” rules that allowed distributions over a lifetime. As the enforcement deadline approaches, here are some of the key points to consider:

• 10-Year Deadline: Non-spouse beneficiaries generally must withdraw all inherited IRA assets by December 31 of the tenth calendar year after the original account owner’s death.
• Annual RMDs May Be Required: If the original account owner had already begun required minimum distributions (RMDs), beneficiaries must often take annual distributions for years 1-9, in addition to the final 10-year full payout.
• Tax Consequences: Distributions from traditional IRAs are taxed as ordinary income, which may push beneficiaries into higher tax brackets, especially if there are multiple years’ worth of withdrawals that must be taken in a short period of time.
• Roth IRAs Are More Flexible But Still Subject to the 10-Year Rule: While inherited Roth IRAs follow the same distribution deadlines, qualified withdrawals from Roth IRAs are generally tax-free. However, planning still matters to avoid a large lump-sum distribution at year 10.
• 2025 is No Longer A “Grace Period”: The IRS recently concluded its delayed enforcement period for several missed distributions, meaning heirs who have not taken withdrawals since 2021-2022 may now face penalty exposure.

What's Next?

• Check your beneficiary status. Confirm when the original owner of the IRA died, and whether they had already begun RMDs. This will determine the applicable distribution schedule.
• Run distribution scenarios.  Work with your advisor or CPA to model tax outcomes for annual versus lump-sum withdrawals, or a combined strategy over the 10-year window.
• If you want to stretch, act quickly. Some beneficiaries (e.g., certain “eligible designated beneficiaries” like minor children or disabled individuals) may still qualify for life-expectancy payouts.
• Coordinate with other retirement accounts. If you have your own IRA or 401(k) account, plan distributions and Roth conversions carefully to manage your overall tax bracket as you also draw down the inherited IRA.
• Consult tax/estate counsel. Given the complexity and significant penalties for mis-timed or missed distributions, it’s worth involving experienced counsel, especially if the inherited IRA is substantial, there are multiple beneficiaries, or the IRA beneficiary is a trust or estate.

Now is the time to review your beneficiary designations, your tax strategy, and your estate plan. Contact us today to align your inherited IRA requirements with your overall estate and tax planning goals.

DISCLAIMER: This summary is not legal advice and does not create any attorney-client relationship. This summary does not provide a definitive legal opinion for any factual situation. Before the firm can provide legal advice or opinion to any person or entity, the specific facts at issue must be reviewed by the firm. Before an attorney-client relationship is formed, the firm must have a signed engagement letter with a client setting forth the Firm’s scope and terms of representation. The information contained herein is based upon the law at the time of publication.