A woman inherited her father’s traditional IRA in 2021 and, having heard she had “ten years” to deal with it, did nothing for four years — no withdrawals, no plan, just a vague sense of a distant deadline. She wasn’t wrong that a ten-year window applied. She was wrong that it meant she could ignore the account until year ten. Her father had already been taking required distributions before he died, which meant she was supposed to be taking annual withdrawals of her own the entire time — and she’d missed four years of them, each one now exposed to a federal penalty that exists specifically to punish exactly this kind of delay.
The ten-year rule is a deadline, not a grace period
Under current IRS rules, most beneficiaries who inherit an IRA or employer retirement plan from someone who died in 2020 or later must fully empty the account by December 31 of the tenth year following the year of death.¹ What frequently gets lost in that summary is a second, separate requirement layered on top: if the original account owner had already reached their required beginning date for distributions — meaning they were already required to take RMDs themselves before they died — most beneficiaries must also take annual required minimum distributions in years one through nine of that ten-year window, not just a single lump-sum withdrawal at the end.² The ten-year rule sets the outer deadline for emptying the account. It does not, by itself, mean nothing is due until year ten.
Why the original owner’s age at death changes everything
Whether annual distributions are required during those nine years hinges entirely on one fact about the person who died: had they already reached their required beginning date. If the original owner died before that date — before they were personally required to start taking distributions — a beneficiary subject to the ten-year rule can wait and take the entire balance in a single withdrawal in year ten, with no annual distributions required in between. If the original owner died on or after that date, the beneficiary must take annual distributions in years one through nine, calculated using the same life expectancy tables the IRS uses for RMDs generally, with the entire remaining balance due by the end of year ten regardless.³ Two people can inherit functionally identical IRAs and face entirely different annual obligations, based solely on how old the original owner was when they died relative to their own required beginning date.
The narrower group that escapes the ten-year rule entirely
A specific category of beneficiaries — “eligible designated beneficiaries” — isn’t bound by the ten-year rule at all, and instead may stretch distributions across their own life expectancy, similar to the rules that applied to all beneficiaries before 2020. This group includes surviving spouses, minor children of the original account owner (until they reach the age of majority, at which point the ten-year clock starts), beneficiaries who are disabled or chronically ill as defined by the IRS, and beneficiaries who are not more than ten years younger than the original owner.⁴ A sibling close in age to the deceased, for instance, may qualify for lifetime stretch distributions where an adult child, being further removed in age in some cases, would not — the category depends on the specific relationship and age gap, not on general fairness.
The math behind an annual required distribution
For beneficiaries required to take annual distributions, the calculation uses the account’s value as of December 31 of the prior year, divided by a life expectancy factor pulled from the IRS’s Single Life Expectancy Table, based on the beneficiary’s age.⁵ That factor decreases by one each subsequent year rather than being looked up fresh annually, which means the required percentage withdrawn from the account gradually increases over time as the divisor shrinks — a beneficiary using this method in year one might withdraw a relatively modest percentage, and a meaningfully larger percentage by year nine, simply due to the mechanics of a shrinking life expectancy factor applied to what may also be a shrinking account balance.
What actually happens if you miss one, and it’s better than it used to be
Missing a required distribution triggers an excise tax under Internal Revenue Code Section 4974 — historically 50% of the amount that should have been withdrawn, reduced by SECURE 2.0 to 25%, and further reduced to 10% if the missed distribution is corrected within a specified correction window, generally two years.⁶ That’s a meaningful penalty on money that was never actually spent, calculated on a shortfall the beneficiary may not have even realized existed — which is exactly the trap the woman in the opening example walked into, four years of the wrong assumption about what “ten years” actually required of her along the way.
The single question that resolves almost all of the confusion
Beneficiaries navigating an inherited retirement account can cut through most of the confusion above with one question, answered early: had the original account owner already reached their required beginning date when they died. That single fact determines whether annual distributions are required during the ten-year window or whether the balance can simply be withdrawn at the end — and getting it wrong, in either direction, either forfeits years of potential tax-deferred growth by withdrawing too early, or triggers the excise tax by withdrawing too late.
Sources
1. Internal Revenue Service, Publication 590-B, “Distributions from Individual Retirement Arrangements (IRAs)” — 10-year rule for most designated beneficiaries of owners who died in 2020 or later.
2. IRS final regulations on required minimum distributions (T.D. 10001, July 2024); IRS Notice 2024-35 — annual RMD requirement during the 10-year window when the original owner died on or after their required beginning date.
3. IRS Publication 590-B, Appendix B, Single Life Expectancy Table — life expectancy factors used to calculate annual distributions for non-spouse beneficiaries subject to the 10-year rule with annual RMD requirements.
4. IRS Publication 590-B — definition of “eligible designated beneficiary”: surviving spouse, minor child of the account owner, disabled individual, chronically ill individual, or an individual not more than 10 years younger than the account owner.
5. IRS Publication 590-B, Appendix B — methodology for calculating required minimum distributions using account balance divided by the applicable life expectancy factor.
6. 26 U.S. Code § 4974 — excise tax on missed required minimum distributions; SECURE 2.0 Act reduction of the penalty from 50% to 25%, further reduced to 10% for distributions corrected within the applicable correction window.
This article is for educational purposes only and does not constitute legal, tax, or financial advice. Inherited retirement account rules are complex and depend on the type of account, the beneficiary’s relationship to the owner, and the owner’s age at death. Consult a licensed tax professional or estate attorney regarding your specific inherited account.