Most non-spouse heirs must fully drain an inherited IRA within 10 years, and withdrawing the full balance in Year 1 pushes the entire amount into ordinary income.
A February 2022 IRS clarification requires heirs who inherited from owners already taking RMDs to also pull annual distributions throughout the 10-year window.
Spreading a $257,000 inherited IRA evenly across 10 years keeps each distribution in a lower tax bracket and lets the remaining balance grow tax-deferred.
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The SECURE Act rewrote the inheritance rules for retirement accounts in 2019, and the change is now hitting a wave of heirs who did not build their plans around it. Most non-spouse beneficiaries who inherit an IRA now have 10 years to fully drain the account. Miss the window and the IRS penalty is steep. Empty it too fast, and the tax bill can consume a meaningful share of the balance. The decision made in Year 1 sets the trajectory for everything that follows.
The average inherited IRA carries a meaningful balance. Fidelity's Q4 2025 retirement data show that the average IRA balance across all age groups is $146,400. A meaningful share of the accounts being passed down carry six-figure balances, which means the tax stakes on the distribution decision are real.
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The most common Year 1 error is treating the inherited IRA like a bank account. Heirs either withdraw the full balance immediately, pushing themselves into a higher marginal bracket for a single year, or they take nothing and forget that the SECURE Act's 10-year clock is running in the background. Suze Orman has fielded a version of this question repeatedly on her podcast, walking listeners through cases where beneficiaries assumed they could "leave it in there for 10 years and then take it out" only to learn the IRS clarified in February 2022 that heirs who inherited from an owner already subject to required minimum distributions must also take annual RMDs during the 10-year window.
Source: Yahoo Finance Top News — This article was automatically imported from the source. Read full article at original source →
