The 10-year rule, in one paragraph
Most non-spouse beneficiaries of IRAs inherited from owners who died after 2019 must empty the inherited IRA by December 31 of the tenth year after death. Final IRS regulations effective 2025 confirm that when the original owner died on or after their Required Beginning Date, those beneficiaries must also take annual RMDs in years 1–9 — not just a balloon distribution in year 10.
Beneficiary categories
| Category | Treatment |
|---|---|
| Spouse | Spousal rollover available; treat as own IRA, RMDs at 73/75 |
| Eligible Designated Beneficiary (minor child of owner, disabled, chronically ill, ≤10 years younger) | Stretch over life expectancy |
| Designated Beneficiary (most non-spouse heirs) | 10-year rule |
| Non-Designated Beneficiary (estate, most trusts, charity) | 5-year rule (death before RBD) or owner's remaining single life expectancy (death after RBD) |
When annual RMDs are also required
- Owner died before RBD: no annual RMDs required during years 1–9; full balance must be out by year 10.
- Owner died on/after RBD: annual RMDs required in years 1–9 using the beneficiary's single life expectancy; remaining balance out by year 10.
Spreading distributions vs. balloon
The biggest tax-planning lever for a 10-year-rule beneficiary is whether to take roughly equal annual distributions, front-load, back-load, or take a balloon in year 10.
- Equal annual: default for most working-age heirs in stable bracket.
- Back-load to year 10: only sensible if the heir expects materially lower income (sabbatical, early retirement) in years 8–10.
- Front-load: useful if the heir expects higher income later (promotion path, business sale, second-spouse income).
- Balloon in year 10: almost always the worst outcome — stacks 10 years of growth into one bracket.
The tax math for working-age heirs
A 45-year-old in their peak earning years often inherits at the highest marginal rate of any household member. A $1.2M inherited Traditional IRA pulled out as a balloon adds $1.2M to ordinary income — much of it at 35% federal plus state — versus roughly $120K/year over 10 years which may stay in the 24% bracket.
What the original owner can still do
- Pre-death Roth conversions by the owner shift the tax to the owner's typically lower bracket and deliver a tax-free 10-year-rule payout to heirs.
- Charitable beneficiaries on the IRA with non-IRA assets to family — IRAs are the most tax-inefficient asset to leave to people and the most efficient to leave to charity.
- Per-stirpes or by-name designations — keep beneficiary forms current after life events; outdated forms are the most common estate failure.
Stephen Arnold
Founder & CEO of Wealth Protection Advisory. Pension and retirement planner with 20+ years advising small business owners. Creator of the Designer DB Plus® strategy and author of Designer DB Plus® Game-Changing Tax Reduction & Retirement Strategy.