Commentary · Tax Strategy

The Inheritance Comes With a Clock.

Written by the William Allan team · Published 2026-10-13

What the IRS now expects from most people who inherit a retirement account.

Many people who inherit an IRA hear one rule: empty the account within ten years.

That is true, but incomplete, and the missing part now carries a penalty. Since January 1, 2025, final IRS regulations have required many heirs to take a withdrawal every year of that decade, not only in the last one. The final regulations

For anyone who owes one, this year's withdrawal is due by December 31.

Who Is on the Ten-Year Clock

The SECURE Act ended life-expectancy payouts for most heirs of people who died after December 31, 2019. Unless an exception applies, the account must be emptied by December 31 of the year containing the tenth anniversary of the death. For a 2025 death, that is the end of 2035. IRS Publication 590-B

The exceptions, called eligible designated beneficiaries, can generally still take payments over their life expectancy: a surviving spouse, a person who is disabled or chronically ill as the tax law defines those terms, anyone not more than ten years younger than the owner, and the owner's minor child. A spouse who is the sole beneficiary has more options, including treating the account as their own. A minor child moves to the ten-year clock at 21, with annual withdrawals generally continuing, and must empty the account by the end of the year they turn 31. Sharing one account with a beneficiary who does not qualify can change the result unless it is split into separate accounts by the end of the year after the death.

Everyone else named individually, including most adult children and grandchildren, is on the ten-year clock. So, generally, is the next heir when a first heir dies after 2019, even if the original owner died earlier, often with annual withdrawals continuing. If the first heir was already on the ten-year clock, the next heir keeps the original deadline; the clock does not restart.

The Date That Decides Everything

Every traditional IRA owner has a required beginning date: generally April 1 of the year after they reach their required distribution age, which is 70½, 72, 73 or 75 depending on birth year. For a workplace plan, the date can be later if the owner was still working for that employer and the plan allows it, unless they owned more than 5 percent of the business.

• If the owner died before that date, an heir who was on the ten-year clock from the start has no required withdrawals in years one through nine, as long as the account is empty by the end of year ten.
• If the owner died on or after that date, an heir on the ten-year clock generally owes a withdrawal in each of years one through nine, based on life expectancy, and whatever remains comes out in year ten.

Roth IRAs are treated as if the owner died before that date, so an heir who was on the ten-year clock from the start owes no annual Roth withdrawals, though the account must still be emptied by the end of year ten. IRS Publication 590-B

What the Annual Number Looks Like

The yearly amount is the prior year-end balance divided by a figure from the IRS Single Life Expectancy table. The heir uses their age in the year after the death, and the figure drops by one each year. If the owner died on or after their required beginning date and their remaining life expectancy is longer, that figure is used instead.

Hypothetical illustration, not a projection: a mother dies in 2025 at 82, after her required beginning date. Her son, who turns 54 in 2026 and is not an eligible designated beneficiary, inherits her traditional IRA, worth $600,000 at the end of 2025. To isolate the rules, assume the account neither gains nor loses value.

His 2026 divisor is 32.5, so his first required withdrawal is about $18,462. With no change in value, the minimum stays at about $18,462 a year for nine years, roughly $166,000 in total. IRS Single Life Expectancy table, Publication 590-B Appendix B

If he takes only the minimum, about $434,000, more than 70 percent of the account, comes out in 2035, all in a single tax year. Taking only the minimum is allowed. It is not the same thing as a plan.

Ten Years of Tax Brackets

Withdrawals from an inherited traditional IRA are generally taxed as ordinary income in the year they come out, except for any after-tax contributions the owner made. So within any required minimums, the ten-year window is a choice about which years carry the income. IRS Publication 590-B

A large final-year withdrawal stacked on a salary can push income into a higher bracket than smaller withdrawals spread over the decade would have. Lower-income years, such as a year between jobs or early retirement before Social Security starts, can be years to take more. For an heir on Medicare, or within two years of it, a large withdrawal can also raise premiums through the two-year IRMAA lookback. State income tax adds another layer.

If a Withdrawal Was Missed

A missed required withdrawal carries an excise tax of 25 percent of the shortfall. It falls to 10 percent if you take the missed amount and file a return reflecting the tax within the correction window. That window generally runs through the end of the second year after the year the tax applies, and closes earlier if the IRS assesses the tax or mails a deficiency notice first. The IRS can also waive the tax for reasonable error if you are taking reasonable steps to fix it, but the waiver has to be requested on Form 5329 with a written explanation. IRS Publication 590-B and Instructions for Form 5329

While the regulations were pending, a series of IRS notices, most recently Notice 2024-35, said the IRS would not assert the penalty on annual withdrawals skipped in 2021 through 2024 by heirs of owners who died in 2020 through 2023 after their required beginning date. That relief ended with 2024 and never moved the ten-year deadline. The skipped years do not have to be made up, but annual withdrawals are required starting with 2025, and the divisor keeps counting down from the year after the death. IRS Notice 2024-35

The people most exposed right now inherited from someone who died in 2020 through 2024 after their required beginning date. A missed 2025 withdrawal can still be taken, and the sooner the better.

One more deadline: if the owner died before taking their own required distribution for the year of death, the beneficiaries have to take it. A separate rule waives the penalty automatically, with no request needed, if it comes out by the later of the beneficiary's tax filing deadline for that year, including extensions, or the end of the following year. For a 2025 death, that generally means by December 31, 2026. The final regulations

Rules That Trip People Up

• An heir other than a spouse cannot treat the account as their own, contribute to it, or roll money into or out of it. Moves happen by trustee-to-trustee transfer into an inherited account, and money paid out cannot be put back. An inherited workplace-plan account can generally be moved into an inherited IRA by direct transfer.
• A required withdrawal can never be rolled over into another retirement account.
• If an estate is the beneficiary and the owner died before the required beginning date, the account generally must be emptied by December 31 of the year containing the fifth anniversary of the death.
• When a trust is the beneficiary, the payout rules depend on whether it meets the IRS see-through rules and who its beneficiaries are. That is a question for the estate attorney. Our piece on trusts and wills covers the broader choice.
• Custodians and employer plans can limit which payout options they offer, so check the account documents before assuming an option is available.

What We Would Tell a Friend

If a friend asked over dinner, the general answer would go something like this.

Find out whether the person you inherited from had started required distributions. For most heirs, almost everything else follows from that one date. If they had, or if you take life-expectancy payments as an eligible designated beneficiary, put a reminder on the calendar every fall until the account is empty. The custodian may calculate the figure, but the tax for missing it falls on you.

Do not let the minimum become the plan by default. And if a withdrawal was missed, deal with it now rather than waiting for a letter. Our piece on the first year after an inheritance covers the rest of that year.

A useful next step is to look at the inheritance and the tax return together with the financial and tax professionals who can evaluate your circumstances.

Schedule a free introductory call with Ian, who handles first conversations for William Allan. The call is not advice; its purpose is to understand your situation and help arrange the right next step with the advisory team.

This commentary is for informational purposes only and is not investment, tax, or legal advice. All investing involves risk, including the possible loss of principal, and past performance does not guarantee future results. Rules checked October 13, 2026, against the final IRS required minimum distribution regulations (T.D. 10001) and IRS Publication 590-B for 2025; they can change. The illustration is hypothetical, assumes no investment gain or loss, and does not predict any account's value or tax result. Tax discussion addresses federal rules; state treatment may differ. William Allan does not provide tax advice; tax preparation and tax advice, when provided, are through affiliated Crawshaw CPAs under a separate engagement. Consult a qualified tax professional regarding your situation. William Allan is an investment adviser registered with the SEC; registration does not imply any specific level of skill or training.