Since 2020, most people who inherit an IRA from a parent have heard the same rule: you have 10 years to empty the account. Many reasonably take that to mean the money can sit untouched until year ten.

For many beneficiaries, that reading is wrong. The penalty relief the IRS offered while finalizing the rules has ended. With December 31 about twelve weeks away, now is the time to make sure an inherited IRA is on the right track.

👤 Meet Patricia

Patricia is 56, a senior manager at a large company, and at the peak of her career. Last year her father passed away at 81 and left her about $1.4 million. Roughly $900,000 is in a traditional IRA. The remaining $500,000 is in a taxable brokerage account, concentrated in a few blue-chip stocks he bought decades ago.

Patricia is grieving, busy, and overwhelmed. The custodian’s paperwork is dense. A friend told her about the 10-year rule, so her plan is to leave the IRA alone, let it grow, and deal with it later.

That plan has a problem.

🔍 What a Closer Look Uncovers

📅 The 10-year rule sometimes requires annual withdrawals. Under the IRS final regulations, the answer depends on when the original owner died. Patricia’s father was 81, so he had already reached his required beginning date and was taking his own RMDs. That means Patricia must take an annual required minimum distribution in years 1 through 9, then empty whatever remains by the end of year 10. The 10-year deadline still applies, but she can’t skip the years in between.

The IRS waived penalties on these missed annual distributions from 2021 through 2024 while it finalized the rules. That grace period is over. A missed RMD now carries a 25% excise tax on the amount not taken, reduced to 10% if it’s corrected promptly.

🧮 What her first RMD looks like. Patricia’s annual RMD is based on the prior year-end balance and her own life expectancy from the IRS Single Life Table. She turns 57 this year, so her factor is 29.8. On a $900,000 balance, her first required distribution is about $30,200. Each following year, the factor drops by one, so the required amount gradually rises.

📈 The minimum isn’t the whole plan. Taking only the minimum each year leaves a large balance to withdraw in year 10, possibly in one lump sum and possibly at a high tax rate. A better approach treats the full 10-year window as a tax-planning tool. Patricia takes the minimum while she’s earning at her peak, then takes larger withdrawals in the lower-income years after she retires but before Social Security and her own RMDs begin.

🏦 The brokerage account comes with an opportunity. Inherited taxable assets generally get a step-up in basis to their value on the date of death. The decades of gains in her father’s stocks are largely wiped clean for tax purposes. Patricia can diversify that concentrated position now for little or no capital gains tax. Leaving it untouched out of loyalty or inertia is one of the most common mistakes heirs make.

⚠️ A trap to avoid. A non-spouse beneficiary cannot roll an inherited IRA into her own IRA. The account must stay titled as an inherited IRA, and money should move only through a direct trustee-to-trustee transfer. It’s also worth confirming whether her father took his own RMD for the year he died. If he didn’t, that distribution becomes Patricia’s responsibility.

💡 Inherited a Roth IRA? The 10-year rule applies, but there are no annual withdrawals in years 1 through 9. The account just needs to be empty by the end of year 10. For most beneficiaries, the best move is to let it grow tax-free and withdraw near the end of the window.

💍 What If You Inherit From a Spouse?

The rules are very different for a surviving spouse. A spouse can generally roll the inherited IRA into their own IRA and treat it as their own. Alternatively, they can keep it as an inherited IRA, which can make sense for someone under 59½ who needs access to the money without the early-withdrawal penalty. In some cases, a spouse can also delay distributions until the deceased spouse would have reached RMD age.

Spouses aren’t the only exception. Minor children of the account owner (until age 21), disabled or chronically ill beneficiaries, and beneficiaries no more than 10 years younger than the owner each have their own, more flexible rules. Everyone else, including most adult children like Patricia, falls under the 10-year rule.

🧭 The Plan: Turning a Required Distribution Into a Savings Strategy

Patricia’s plan addresses the RMD problem and her own retirement at the same time.

First, she increases her 401(k) contributions to the maximum. For 2026, she can contribute up to $24,500, plus an $8,000 catch-up because she’s over 50, for a total of $32,500. If she’s behind on this year’s deferrals, she can increase her percentage for the remaining paychecks to still hit the annual maximum.

Second, she uses the inherited IRA’s RMD to cover daily living expenses. Her larger 401(k) deferral lowers her take-home pay. The roughly $30,000 RMD replaces it. Her household cash flow stays about the same, but the inherited money effectively moves into her own retirement plan. The pre-tax deferral offsets much of the taxable income the RMD creates, and her own 401(k) keeps growing on her own timeline instead of the IRS’s 10-year clock.

There’s one detail to note. Under SECURE 2.0, employees whose prior-year wages exceeded an indexed threshold (about $150,000) must make catch-up contributions as Roth. Patricia’s $8,000 catch-up will be taxed now rather than deferred. That still works in her favor, since it builds a pool of tax-free retirement money.

Third, she maps out the full 10 years. She’ll take the minimums while she’s working, then withdraw more during lower-income years in early retirement so the account is fully distributed by year 10 without pushing her into a higher tax bracket.

Fourth, she diversifies the stepped-up brokerage account into a portfolio that fits her own risk tolerance and goals.

Finally, she updates her own beneficiary designations and estate plan. Her net worth has grown substantially, and her own heirs deserve the clarity she didn’t have.

📊 What Changes

Patricia goes from leaving the IRA alone and risking a penalty to having a coordinated 10-year plan. She takes each RMD on time, and each one effectively becomes a contribution to her own retirement. Her inherited stock position is diversified with little tax cost, and the IRA’s eventual distribution is spread across her lowest-tax years instead of landing on top of her highest ones.

Her father’s gift stops being a source of anxiety and becomes part of a plan.

💬 A Conversation Worth Having

If you’ve inherited an IRA in the past few years, especially from a parent who was already taking RMDs, it’s worth confirming where you stand before December 31. Inherited accounts sit at the intersection of tax law, retirement planning, and family legacy, and that’s exactly the kind of coordination we focus on at RADIANT Wealth Planning. If this is where you are, we’d welcome the conversation.

These stories are based on real-life scenarios. Names and details have been changed. This content is for educational purposes only and does not constitute financial, tax, or legal advice.