Most People Who Inherit an IRA Now Have Ten Years to Empty It. A Short List of Beneficiaries Does Not.

An inherited IRA is not a continuation of the account the owner held. It is a separate regime with its own deadlines, and for most beneficiaries the governing one is a date: December 31 of the year containing the tenth anniversary of the owner's death. By then the account must be empty.

Who the ten-year rule applies to

Publication 590-B sets the rule for a designated beneficiary who is not an eligible designated beneficiary. That beneficiary must withdraw the entire balance of the IRA by the ten-year deadline, and the publication states that this applies regardless of when the owner died. The adult child who inherits a parent's IRA is the common case.

Who it does not apply to

The publication defines an eligible designated beneficiary as the owner's surviving spouse, the owner's minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner. An eligible designated beneficiary may take distributions calculated on life expectancy rather than emptying the account inside a decade, using Table I, the single life expectancy table in the publication's appendix.

• Surviving spouse.
• The owner's minor child.
• A disabled individual.
• A chronically ill individual.
• Any other individual not more than 10 years younger than the owner.

Before or after the required beginning date

For beneficiaries using life expectancy, the date of death relative to the owner's required beginning date changes the calculation. Where the owner died before that date, an eligible designated beneficiary can spread distributions over their own lifetime. Where the owner died after it, the publication requires distributions based on the longer of the beneficiary's single life expectancy from Table I or the owner's life expectancy. The second branch exists to stop the death of an older owner from shortening a payout schedule that had already begun.

Beneficiaries that are not people

An estate, a charity or certain trusts named as beneficiary are not designated beneficiaries, and the IRS's beneficiary guidance puts them on the most restrictive schedule, including taking the entire balance by the end of the fifth year following the year of death where the owner died before the required beginning date. The distinction matters at the point the beneficiary form is filled in, not afterwards: who is named determines which schedule the account falls under.

Why the ten-year window still has shape

The ten-year rule sets an end date, not an even schedule. The tax consequence of a withdrawal depends on the beneficiary's own taxable income in the year it is taken, so the same account emptied in one year and emptied across ten produces different totals of tax. Whether annual distributions are also required inside the ten years, as against one withdrawal at the end, depends on the owner's status at death, and the regulations in this area have been the subject of successive IRS guidance.

This article summarises published IRS guidance and is for informational purposes only. It is not tax, legal or investment advice and not a recommendation about any account or distribution strategy. Consult Publication 590-B and a qualified tax professional about an inherited account.