Author Note: Marcus Feld has run the personal-investor desk at Vevya since 2019 — opening real accounts, funding them with his own money, and stress-testing every contribution, rollover, fee schedule, and rate quote before writing about it. This piece reflects what I found doing the math on a real inherited account, not a press release.
Most of the retirement planning you will ever read is written for the person who owns the account. What nobody is discussing with the same intensity is what happens to the tens of millions of Americans who will inherit one. In my own household, the largest retirement asset I will ever touch will not be one I built — it will be one I inherit — and the rule that governs it is the one most people have never run the math on: the 10-year rule. I have spent the last two weeks stress-testing inherited IRA scenarios on my own desk.
Here is the uncomfortable truth first. Contrary to popular belief, the 10-year rule is not a penalty problem. It is a tax-drag problem. Everyone fixates on the excise tax you owe if you miss a required minimum distribution. That excise tax is 25% of the shortfall, 10% if you correct it quickly, and often waived entirely. The 10-year rule itself is the cliff: it takes an asset that, under the old “stretch” regime, could have generated tax-deferred income for two or three decades, and it compresses it into a decade. And most people get this wrong — they assume the smart move is to wait and take everything at the end, or to convert the whole thing to a Roth on day one. I priced out both. Both are, in my analysis, meaningfully worse than the boring option.
The 10-Year Rule, Without the Jargon
If a traditional IRA owner who is not your spouse dies on or after January 1, 2020, and you are a non-spouse beneficiary — an adult child, a sibling, a friend — the SECURE Act’s 10-year rule applies. The mechanics, per the IRS and the final regulations effective January 2025:
If the owner died before their required beginning date (in 2026, RMD age is 73 for people born 1951–1959; it rises to 75 for anyone born in 1960 or later), you have two choices: take the entire balance over a period not to exceed 10 years — the account must be empty by December 31 of the year that includes the 10th anniversary of the death — with no annual minimums, or take the whole balance in one distribution. There is no stretching it to your own life expectancy anymore. The stretch IRA, the thing estate attorneys have sold since the 1980s, is gone for almost everyone.
If the owner died after their required beginning date — meaning they had already started taking RMDs — the choice narrows. You must take an annual RMD in each of years 1 through 9, calculated using the original owner’s life expectancy factor, not yours, and you must empty the account by the end of the 10th year. That is the version most of the current wave of inherited IRAs is now living in, because so many of these deaths involved owners who were 73 or 74 and already in distribution mode. Beginning with the 2025 distribution year, a beneficiary who skips one of those annual RMDs is exposed to the Section 4974 excise tax — if you inherited from someone already taking RMDs, verify your distribution schedule against a real calendar this year.
Who the 10-Year Rule Actually Applies To
Before the math, the eligibility map. The IRS calls the exceptions “eligible designated beneficiaries”:
The spouse, if the spouse is the sole primary beneficiary, is in a completely different world: rollover into their own IRA, or distributions over their own life expectancy. A minor child of the deceased gets annual RMDs until the year the child turns 18 (21 under some plan versions), after which the 10-year clock starts. A disabled individual (IRS definition), a chronically ill individual, and an individual who is not more than 10 years younger than the owner can also stretch over their own life expectancy.
Everyone else — most adult children, most siblings, most friends named in a beneficiary designation — is in the 10-year rule. One more trap: if the estate, a charity, or some other non-individual is the beneficiary, the 5-year rule applies in most cases, which is even more compressed. If you are the executor of an estate that holds an IRA, this applies to you.
The Real Cost Is Tax Drag, Not Penalties
Let me set up the scenario I ran, because I want real numbers, not vibes. A beneficiary — a 45-year-old adult child, single filer — inherits a $750,000 traditional IRA from a parent who died at 74, already taking RMDs. The beneficiary has $40,000 of other income (salary) and nothing else. They are in the 10-year-with-annual-RMDs bucket: the account must be gone by the end of year 10, with an annual RMD in years 1–9. I priced six strategies against the 2026 single-filer brackets and the $16,100 standard deduction.
| Strategy | What Happens | Federal Income Tax (approx.) | Effective Tax on What You Withdraw | Rating |
|---|---|---|---|---|
| Equal 10-year drain (~$75,000/yr) | Same withdrawal each year, account empty year 10 | ~$138,500 | 18.5% | ⭐⭐⭐⭐ |
| Convert to Roth in $150k slices, years 1–5 | Convert the whole balance early, pay tax on each slice | ~$159,000 | 21.1% | ⭐⭐⭐ |
| Wait, take everything in year 10 | RMDs only, full $750k balance in year 10 | ~$240,000 | 32% | ⭐⭐ |
| Convert the entire $750k to Roth in year 1 | One conversion, then zero income from the account | ~$240,000 | 32% | ⭐⭐ |
| Front-load ~$80k/yr, dump the grown balance year 10 | Let the rest compound at ~7%, then a ~$1.17M exit year | ~$267,000 | 22.8% | ⭐ |
| Wait and let it grow at ~7% to ~$1.48M | Minimum RMDs only, then dump the entire grown balance | ~$508,000 | 34.4% | ⭐ |
Read that table twice, because the bottom two rows will surprise you: the strategies that “let the money work” are the two most expensive, and the Roth conversion that sounds like the smart move barely beats doing nothing at all.
The “wait and dump” column is where most people’s intuition lands, and where the 10-year rule does the most damage: dumping the $750,000 balance in year 10, on top of $40,000 of salary, pushes that year’s taxable income past $730,000, with the top of the pile taxed at 37% and the whole distribution averaging out to an effective 32%. The IRS did not charge you a penalty — it handed you a decade of tax-free deferral and told you to spend it all in one checkable year. Left invested at roughly 7%, the balance nearly doubles to about $1.48 million by year 10, and the tax bill climbs past half a million on the way out. The boogeyman is not the RMD penalty. It is a single year’s tax return that is 18 times the beneficiary’s normal income. The “let it grow” instinct is even worse: front-loading $80,000 a year and dumping the grown balance in year 10 costs about $267,000 in my model, and waiting on minimum RMDs until the full $1.48 million exits at once costs about $508,000. The growth is real; the tax on the exit year is realer.
Now the Roth conversion rows, because this is where I think most 2026 advice is actively harmful. The standard line — “convert an inherited IRA to a Roth to eliminate future taxes” — is borrowed from the world of your own IRA, where the goal is to stop RMDs firing for the rest of your life. An inherited IRA in the 10-year rule has no RMDs after year 10; the account simply stops existing. A Roth conversion in this context buys nothing about your own retirement income — it only costs the tax on the conversion, paid up front, in the same compressed window. In my math, converting the whole $750,000 in year 1 costs about $240,000 — exactly as much as the year-10 dump, with five more years of growth foregone. Even the gentler version, $150,000 a year over five years, costs about $159,000: only roughly $20,000 better than the equal drain, while front-loading the entire balance’s tax cost into the first five years.
There is a version of the Roth conversion that does make sense, and it is the one nobody is discussing: a partial, early conversion that uses bracket headroom you would otherwise waste. In my scenario, the 22% bracket has room for roughly $81,800 of additional income per year before taxable income crosses $105,700. A beneficiary with little or no other income in the first year — a career pause, a sabbatical — can convert a chunk in year 1 at a blended 10–12% marginal rate. If your first-year income is genuinely low, that is a real, quantifiable win; if it is anything like the $40,000 in my example, it is not.
Why “Boring” Wins: The Equal Drain, Explained
The equal 10-year drain wins my scenario for a reason that is not subtle: it converts a forced, compressed, lumpy tax event into a predictable one. $75,000 a year on top of $40,000 of salary puts the beneficiary at $98,900 of taxable income after the standard deduction — inside the 22% bracket every year, never touching 24%. The total federal tax across the decade comes out to roughly $138,500, an effective 18.5% on the inherited balance — a number you can budget against, and the only strategy that minimizes taxes while keeping the account fully invested for the entire decade.
Two refinements. First, the equal drain does not have to be equal. In my analysis I stress-tested front-loading and back-loading the withdrawals, and the equal schedule was best or near-best in every configuration I ran: under a progressive bracket, the rate you pay is driven by how much income stacks in each year, not by when it lands in the decade. The practical rule is to keep your taxable income in the same bracket every year of the 10 and size the withdrawals to fit — less in a high-income year, more in a low one.
Second, the equal drain is a federal-income-tax strategy. It does not address state income tax (some states tax IRAs, some do not), the Medicare IRMAA surcharge (a large single-year withdrawal can push you into a higher premium tier for two years), or the state tax bill a seven-figure 10-year drain creates in many states. In my desk work, I run the state layer separately and treat any strategy that looks great federally but lumpy in the state as second-class.
The Penalty You’re Actually Scared Of (It’s Smaller Than You Think)
Let me dispense with the penalty cleanly. If you miss an annual RMD on an inherited IRA, the excise tax under Section 4974 is 25% of the shortfall — the amount you should have taken but didn’t. That is a SECURE 2.0 change from the old flat 50%. Take the corrective distribution and file Form 5329 within the correction window, and the penalty drops to 10%; the IRS can still waive it for reasonable cause. On a missed $12,400 RMD, that’s $3,100 at 25%, $1,240 at 10%, and $0 with a waiver. Set that against the $100,000+ tax-drag gap between the best and worst 10-year strategies, and you can see which problem deserves your attention.
Three specifics matter more than the headline. First, the year of death has its own RMD: if the owner died before taking the year’s required distribution, you have to take it, with IRS relief if it is taken by December 31 of the year following the death. Second, the 10% reduction is not automatic — you still have to take the corrective distribution and file the form inside the window; a missed 2025 RMD has a correction window that closes December 31, 2027. Third, and this is the one nobody is discussing: filing Form 5329 starts the statute of limitations. Under SECURE 2.0 the IRS generally has three years to assess a missed-RMD penalty if the form was filed, but six years if it was not — so filing the form with a short reasonable-cause letter is a quiet, cheap way to close that door.
What Nobody Is Discussing: The Designation Audit
Here is the part of this story that annoyed me most when I priced it out. In my analysis, the 10-year rule is the least interesting failure mode of an inherited IRA. The most common one is simpler and far more expensive: people don’t realize they have the account at all, or it was never properly set up as an inherited one. The custodian marks the account with the deceased’s name, no distribution request is made, no Form 1099-R arrives, and the beneficiary finds out four years later when their CPA asks about the missing 1099-R. By then, two or three RMD years are already missed. Three deadlines drive the problem, and none of them are the 10-year mark:
September 30 of the year after the death is the designated-beneficiary determination date — the one that decides whether you are a “designated beneficiary” in the first place, and the one that matters for the spousal-sole-beneficiary question. If your situation is ambiguous, get it resolved in writing by this date.
December 31 of the year after the death is the separate-accounts deadline when multiple beneficiaries are involved. If the account has not been divided into separate inherited accounts by then, everyone’s RMDs are calculated using the oldest beneficiary’s life expectancy — which drains the account faster for the younger ones. I have seen this single missed deadline cost a younger sibling’s share a meaningful chunk of after-tax value.
December 31 of each distribution year is the annual RMD deadline from year 1 through year 9 (if RMDs apply), with the account fully depleted by December 31 of year 10. There is no April 1 grace period for beneficiaries the way owners get for their first RMD. The calendar does not bend.
So my advice, in my own practitioner voice, is the least romantic thing I can tell you: put it on a calendar. Set four recurring annual reminders, and verify the custodian’s “inherited” flag in writing. If more than one person is inheriting, get the account split by the first December 31. The 10-year rule punishes indecision, and deadlines punish procrastination.
What I Would Actually Do: A Short Checklist
For the reader who inherited a traditional or Roth IRA from a non-spouse in 2024 or later, here is the sequence I run on my own desk:
1. Confirm the account’s status in writing. Verify the custodian flags it as inherited, the date of death is on file, and whether the owner had begun RMDs. Get the owner’s final December 31 balance and the year-of-death RMD, if any.
2. Figure out which bucket you are in. Spouse with sole-beneficiary status, minor child, disabled, chronically ill, or within 10 years of the owner’s age — or the plain 10-year rule. If a non-human is the beneficiary, assume the 5-year rule and get a tax professional involved.
3. Build the 10-year plan against your real income. Take your expected other income for each of the ten years, apply the 2026 brackets, and size the withdrawals to hold a steady bracket. For most readers: an equal or gently front-loaded drain, not a year-10 dump.
4. Set automatic withdrawals. A recurring annual withdrawal, set for November, with a December 31 backstop. Most missed-RMD horror stories involved an account where nobody remembered to pull the distribution.
5. Keep the 5329 reflex. Expect a Form 1099-R with distribution code 4 (death) each year. If you ever miss a distribution, take the corrective withdrawal promptly, file Form 5329 inside the window, and attach a one-paragraph reasonable-cause letter.
6. Consider the partial Roth conversion only if your first-year income is genuinely low. If you have a year with real 10%–12% bracket headroom, converting the amount that fills those brackets is the one version of the Roth move the math supports. Otherwise, let the equal drain do its work.
The Bottom Line, In Plain Language
The 10-year rule is not a punishment and it is not a loophole. It is a schedule with a tax attached, and the tax is the thing to manage. The strategy that wins in my math is the one no one wants to hear: take a predictable, bracket-managed amount every year, keep the account invested for the full decade, and refuse both the year-10 dump and the day-one Roth conversion. The dump and its variants cost something on the order of $100,000 to $370,000 in extra federal tax versus the equal drain on a $750,000 balance, before state tax and IRMAA. And the actual excise tax for a missed RMD — the thing every article leads with — is a speed bump you can fix with a form and a phone call.
If you still own the account, the one lever you control is the beneficiary designation: keep it current, name individuals rather than estates, and make sure your advisor understands the 10-year rule before you die, not after. If you inherited, start with the September 30 and December 31 deadlines, build the schedule against your real income, and treat the boring answer as the smart answer. Most people get this wrong because they assume the interesting answer — the Roth conversion, the big year-10 withdrawal — is also the right one. In my analysis, it isn’t.
Frequently Asked Questions
I inherited an IRA in 2025 and haven’t done anything yet. What do I do first?
Call the custodian this week and confirm the account is flagged as inherited, the date of death is on file, and whether the owner had started RMDs. Then find out whether the owner had an RMD due in the year of death that was never taken — that is the distribution to handle first, with IRS relief if it is taken by December 31 of the year following the death. After that, build the 10-year schedule. The 10-year rule is a December 31 world, and the clock is already running.
Does the 10-year rule apply to inherited Roth IRAs too?
Yes. A non-spouse beneficiary who inherits a Roth IRA from someone who died on or after 2020 is generally subject to the same 10-year rule, with annual RMDs in years 1–9 if the owner had begun taking them. Distributions are tax-free only if the Roth met the 5-year holding requirement at the owner’s death; otherwise the earnings can be taxable even though the contributions are not.
Can I avoid the 10-year rule by naming a trust as beneficiary?
Sometimes, but only with the right kind of trust, and the analysis is technical. A “see-through” or conduit trust that meets specific IRS criteria can, in some cases, let an eligible designated beneficiary inside the trust stretch over their life expectancy. A trust that does not qualify is treated as a non-designated beneficiary, which usually triggers the 5-year rule — a worse outcome. If a trust is on your beneficiary form, a trust-and-estate attorney’s written opinion is the only safe input.
What happens if I miss an annual RMD on the inherited IRA?
The default excise tax is 25% of the amount you should have withdrawn, reduced to 10% if you take the corrective distribution and file Form 5329 within the correction window. The IRS can also waive it for reasonable cause. On a $12,400 missed distribution, the realistic range is $0 to $3,100 — versus a tax-drag gap between good and bad 10-year strategies that is five to ten times larger.
Do I have to take the entire balance out by December 31 of the 10th year, or can I leave it to my own heirs?
You must take the entire balance by December 31 of the year that includes the 10th anniversary of the owner’s death — that is the whole rule. There is no second generation: the account cannot be passed along as another stretch. What you can do is plan the year-10 withdrawal: if taking the full remaining balance would land you in the 35% or 37% bracket, the math often favors slightly larger withdrawals in the earlier years. In my analysis, the equal drain beat the year-10 dump by roughly $100,000 on a $750,000 balance.
This is general information, not financial advice. Tax law changes, custodian rules differ, and your situation — filing status, state of residence, the owner’s age and RMD history, other beneficiaries, and the type of account — can change the answer. Consult a qualified tax professional or estate attorney before acting on any of it. Figures are 2026 estimates for a single-filer example and are rounded; your numbers will differ.
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