Inherited an IRA? The Annual RMD Rule and Your December 31 Deadline

For years, the rules for inherited IRAs were unclear. They are clear now, and the penalty for missing a withdrawal is real.

Why This Matters Now

The SECURE Act of 2019 changed how most heirs handle inherited retirement accounts. If you inherited an IRA from someone who died in 2020 or later and you are not an exempt beneficiary, the account generally has to be emptied by the end of the tenth year after the year of death.

What was unclear for several years was whether heirs also had to take withdrawals in years one through nine. The IRS waived penalties while it worked out the answer, then issued final regulations in 2024. Beginning in 2025, many heirs must take an annual required minimum distribution (RMD) each year and still empty the account by year ten.

This is the second year that requirement applies, and many beneficiaries still do not know about it.

Who Has to Take Annual Withdrawals

Whether you need annual RMDs depends mostly on one question: had the original owner already reached their own RMD starting age when they died?

• If yes: most non-spouse beneficiaries, commonly adult children, must take an RMD every year and empty the account by the end of year ten.
• If no: annual RMDs are not required, but the account still has to be emptied by the end of year ten.

Some beneficiaries, called "eligible designated beneficiaries," are generally not subject to the 10-year rule. These include a surviving spouse, a minor child of the original owner (until age 21), someone who is disabled or chronically ill, and a beneficiary not more than 10 years younger than the original owner.

Inherited Roth IRAs follow the 10-year rule too, but annual withdrawals generally are not required because Roth owners do not have lifetime RMDs.

How the Deadlines Work

• Each year's inherited IRA RMD is due by December 31 of that year.
• The full balance is due by December 31 of the tenth year after the year of death. If the owner died in 2021, that is December 31, 2031.
• Inherited IRAs cannot be combined with your own IRAs when calculating or taking RMDs. Inherited IRAs of the same type from the same person generally can be combined with each other.

If you are also taking RMDs from your own accounts, our article on RMDs after 73 covers those rules.

If You Missed a Withdrawal

The penalty for a missed RMD is 25% of the amount you should have withdrawn, reduced to 10% if corrected within the correction window, which is generally up to two years.

The usual steps are to take the missed amount as soon as you notice, file IRS Form 5329, and if appropriate, request a waiver by explaining the reasonable cause and the correction. The IRS has granted waivers in many cases, but it is not automatic. A tax professional can help with the filing.

The Tax Planning Angle

The annual RMD is a minimum. Many heirs focus only on avoiding the penalty and end up with a large balance to withdraw in the final year, which can push income into a much higher bracket.

Spreading withdrawals more evenly across the 10 years may produce a lower total tax bill. Timing also interacts with other parts of your financial life: large withdrawals can raise Medicare premiums for those 63 and older (see our article on IRMAA) and can affect how much of your Social Security is taxed. Texas residents do not owe state income tax on these withdrawals, which can be an advantage over heirs in other states.

Year-End Checklist for Heirs

• Confirm the year the original owner died and whether they had begun taking RMDs.
• Confirm whether you are an eligible designated beneficiary.
• Ask your custodian for this year's RMD amount and confirm it before December 31.
• Map out a withdrawal plan for the remaining years rather than deciding one year at a time.

Investment advisory services offered through CreativeOne Wealth, LLC, a Registered Investment Adviser. CreativeOne Wealth, LLC and Luca Wealth Management are unaffiliated entities. This material is for informational purposes only and does not constitute investment, tax, or legal advice. Past performance is not indicative of future results. Investing involves risk, including the possible loss of principal. Please consult with a qualified professional before making any financial decisions.