What to Know About Required Minimum Distributions for Inherited IRAs

Inheriting an individual retirement account can be a pleasant surprise. But gifting comes with mandatory withdrawals for heirs and following the rules can be difficult, experts say.

Under the Secure Act of 2019, some heirs now have less time to deplete inherited accounts due to a change in what are called “required minimum distributions.” Before 2020, heirs were allowed to “stretch” withdrawals throughout their lifetime.

“It’s so complicated,” said Ed Slott, an IRA expert and CPA. “It’s almost unfair that it’s so difficult to get money out of an IRA through this quagmire of rules.”

“Inherited accounts generally require beneficiaries to receive a distribution by Dec. 31 of the year the original owner dies,” said certified financial planner Ashton Lawrence, principal at Mariner Wealth Advisors in Greenville, South Carolina. .

But the rules for inherited accounts “can be complex,” he said, depending on when the original owner died, whether or not they initiated RMDs, and the type of beneficiary. (There is an IRS table with the details here.)

The first question is when you inherited the IRA, because heirs who received the account before 2020 can still use the “stretch” rules to make lifetime withdrawals, according to Slott.

But there is now a 10-year withdrawal rule for some heirs, meaning everything must be withdrawn no later than the 10th year after the original account owner dies. The rule applies to accounts inherited by so-called “non-eligible designated beneficiaries” on or after January 1, 2020.

Ineligible designated beneficiaries are heirs who are not a spouse, minor child, disabled person, chronically ill person or certain trusts.

But if you inherited an account in 2020 or later and the original owner has already started RMDs, you should begin withdrawals immediately, Slott said. “It’s a bit like a water faucet,” he says. “Once the tap is turned on and RMDs start, it can’t be turned off.”

Like retirees, heirs generally face a penalty if they miss an RMD or don’t withdraw enough. The penalty is 25% of the amount that should have been withdrawn or 10% if the RMD is corrected within two years.

Amid the confusion, the IRS waived the penalty in 2022 for missed RMDs for certain inherited IRAs, then extended the waiver to include 2023 this summer.

“The IRS has said we won’t charge a penalty for (missed) RMDs, which basically means you don’t have to take them,” Slott said. But heirs may still want to start taking RMDs to avoid a “giant RMD” in coming years, he said.