How To Withdraw From An Inherited IRA Under The 10-Year Rule

Open a properly titled Inherited IRA, move the assets directly via a trustee-to-trustee transfer, then withdraw the money on a flexible schedule as long as the entire balance hits $0 by December 31 of the 10th year after death. You cannot roll this money into your own IRA, and skipping a required annual distribution - if the original owner was already taking RMDs - triggers a 25% penalty on the amount you failed to take.

The inherited IRA 10-year rule sentence you won't find elsewhere

The 10‑year rule only survives when the assets move directly from the deceased owner’s IRA to an Inherited IRA in your name as beneficiary.

Open a properly titled Inherited IRA. Move the assets directly via a trustee‑to‑trustee transfer. Then withdraw the money on a flexible schedule, as long as the entire balance hits $0 by December 31 of the 10th year after death. You cannot roll this money into your own IRA. If the original owner was already taking RMDs, skipping a mandatory annual withdrawal triggers a 25% penalty on the amount you failed to take. The mechanics are straightforward once you separate the setup from the withdrawal timing. The IRS gives you a full decade of calendar years to drain the balance, not ten 365‑day periods from the date of death.

The one mistake that locks you into a penalty

The fastest way to destroy the 10‑year stretch is to have the IRA custodian issue a check made out to you personally. The moment you receive those funds, the IRS treats the entire payout as taxable income in that year. You lose the right to spread withdrawals across the remaining years. Worse, if you try to deposit that check into your own traditional IRA or Roth IRA, you have just committed an excess contribution. The IRS limits annual contributions to earned income, and an inheritance is not earned income. Any check made to you permanently converts the holding into a fully taxable payout and eliminates the 10‑year option entirely. This is true even if you intend to redeposit it within 60 days. The same logic applies if you attempt a rollover into your own retirement plan. The IRS explicitly prohibits rolling inherited assets into your personal IRA. The custodian will code the payout as a full taxable event.

Setting up the holding so the clock starts right

Call the custodian holding the original IRA and ask for the “beneficiary distribution” or “inherited IRA” department. You need to open a new holding titled exactly like this: “Your Name, Beneficiary of [Original Owner’s Name], IRA.” Do not put your own name as the sole owner. Do not use the word “rollover” anywhere in the paperwork. The custodian will process a trustee‑to‑trustee transfer. The assets move directly from the deceased owner’s plan to your new Inherited IRA without ever touching your hands. If the original owner died on or after their required beginning date, April 1 of the year after they turned 73, you must also take a mandatory annual withdrawal for each year you hold the plan, starting with the year after death. The custodian will calculate this annual amount based on your life expectancy. You can withdraw more than the minimum each year without penalty. The clock for the 10‑year rule starts on January 1 of the year after death. If the owner died in March 2024, your deadline is December 31, 2034. That gives you nearly 11 full calendar years to drain the holding.

Mapping your withdrawal schedule to your tax brackets

Most beneficiaries make the same mistake. They wait until year 10 to take everything, then watch the entire balance get taxed at the highest marginal rate. Instead, project your taxable income for each of the next 10 years. Include salary, investment gains, and any other retirement withdrawal strategies you already use. Fill your lower tax brackets each year. For example, if you are single and earn $60,000, you can withdraw roughly $32,000 annually before hitting the 22% bracket for 2025, based on the IRS‑published tax tables. Confirm the current bracket thresholds at IRS.gov. If you have a low‑income year due to a job change, a sabbatical, or returning to school, accelerate your withdrawals that year to fill the 12% or even 10% bracket. Conversely, if you are still working and earning a high salary, minimize withdrawals to only the mandatory minimum amount. The key is to treat the inherited IRA as a bridge that fills gaps in your tax bracket, not as a lump sum to be dumped in a single year. A common strategy is to withdraw the entire balance in a year when you retire. Your taxable income drops to near zero, letting you take the full payout in the lowest brackets for ordinary income.

When the 10-year rule does not mean no annual withdrawals

A dangerous misconception leads many beneficiaries to skip yearly payouts entirely. They assume the 10‑year rule gives them a single deadline. That is only true if the original owner died before their required beginning date, typically before age 73. If the owner died on or after that date, the IRS mandates an annual withdrawal based on your own life expectancy each year. You must also fully drain the plan by December 31 of the 10th year. The penalty for missing this annual withdrawal is 25% of the amount you failed to take. The IRS will not waive it unless you file Form 5329 and demonstrate reasonable cause. For example, if the owner died at age 78 and your mandatory withdrawal for the first year is $10,000, skipping it triggers a $2,500 penalty on top of the income tax you owe. The IRS sets this penalty rate; verify the current figure at IRS.gov. The custodian will calculate this annual amount for you, but you must request it explicitly. They will not automatically send it unless you elect to receive it. If you are unsure whether the owner had reached their required beginning date, check their prior year’s tax return or call the Social Security Administration to confirm their birth date and filing status. You can also adjust withdrawals during a market downturn by selling fewer shares when prices are low. You still must withdraw the dollar amount the IRS calculates. Consider keeping cash or bonds in the holding to cover the mandatory minimum without selling equities at a loss. Similarly, remember that Social Security timing affects my withdrawal strategy. Taxable IRA payouts can push up to 85% of your Social Security benefits into taxation. Coordinate the two to avoid an unexpected tax bill in years you claim benefits.

Frequently Asked Questions

Can I name a new beneficiary on my inherited IRA?

Yes, but only if the original owner died before their required beginning date and you are using the 10‑year rule. If you name a beneficiary, that person inherits the remaining balance and must continue the 10‑year schedule from the original owner’s death date, not yours.

What happens if I miss the December 31 deadline in year 10?

You owe a 50% excise tax on the remaining balance because the IRS treats the full holding as a deemed payout. There is no extension or waiver for missing this deadline. Set multiple calendar reminders and consider withdrawing the final amount in early December.

Do I have to take an RMD in the year the owner died?

No, the year of death is handled by the original owner’s final tax return. Your first mandatory withdrawal begins in the year after death. You have until December 31 of that following year to take it without penalty.

Can I convert the inherited IRA to a Roth IRA?

No, you cannot convert an inherited traditional IRA to a Roth IRA. You must withdraw the money first and pay income tax on it. Then you can contribute to a Roth only if you have earned income and meet contribution limits. The 10‑year rule still applies to the inherited holding itself.