What to do after inheriting an IRA from a parent
If you’ve inherited an IRA from a parent, you may be wondering what your options are. Though there are some exceptions, most adult children inheriting an IRA or 401(k) from a parent will need to take the money in 10 years, and many will also be required to take annual distributions.
The rules for inherited IRAs have changed significantly in the last several years. Adult children who inherited a retirement account before 2020 will continue to be covered under the old rules (which typically meant a ‘stretch’ IRA). Here are the choices for beneficiaries inheriting an IRA in 2025 and going forward.
Inherited IRA rules
Non-spouse beneficiaries of retirement accounts fall into two groups:¹
- Eligible designated beneficiaries (not subject to the 10-year rule)
- Surviving spouses
- Minor beneficiaries have until they reach the age of majority (21) before the 10-year payout period begins
- Beneficiaries less than 10 years younger than the decedent, or
- If the beneficiary is disabled (strict definition applies)
- Non-eligible designated beneficiaries (10-year rule applies, maybe annual distributions too)
- Everyone else – this article focuses on these beneficiaries
Upshot: Unless you qualify as an eligible designated beneficiary, you’re considered a non-eligible designated beneficiary, and subject to the 10-year rule, and potentially annual distributions (RMDs) too.
10-year rule
As far as inheritances go, the 10-year rule is pretty simple. Adults who inherit an IRA from their parent will need to empty that account within 10 years. The clock starts ticking the year after the account owner died and you have until the end of the 10th year to take the funds.
Anyone who inherits an IRA or 401(k) from a parent must now follow the 10-year rule (again, assuming they don’t qualify as an eligible designated beneficiary). However, some adults must also take distributions (called required minimum distributions or RMDs) during the 10-year window.
If RMDs are not required, you have full control over how and when take the money out of your inherited IRA provided the account is emptied in 10 years. More on inherited IRA distributions strategies later.
10-year rule example:
Scottie inherited an IRA from her father in 2025. She sets up an inherited IRA account and the money is transferred. Her inherited IRA must be empty by December 31st, 2035.
When annual withdrawals are required (in addition to the 10-year rule)
Many adults who inherit an IRA from a parent will also need to take required minimum distributions, or RMDs. Essentially, if your parent was taking required minimum distributions because they were over a certain age, then you must take RMDs too.
The concept centers around whether your parent or relative reached their required beginning date (RBD)². Elderly parents passing away in their mid-70s or later would have been taking distributions.
When annual distributions are required, individuals inheriting an IRA from a parent must calculate and take money out in years one through nine in addition to taking the remaining lump sum in year 10.
If you’re working with a financial advisor, they can help calculate your RMDs and discuss planning strategies with you. Otherwise, you’ll need to calculate the distribution annually during the 10-year window, using your life expectancy according to the IRS Single Life Table, reduced by one each year.
Important note: if your parent did not take their full RMD in the year of death, it must be satisfied by the beneficiaries by the end of the year.
Special rules for Roth IRAs
Required minimum distributions are not required for Roth IRAs – regardless of the account owner’s age at death. Roth 401(k)s can only bypass annual distributions if 100% of the retirement plan was in a Roth account. If there’s a mix of pre-tax and Roth funds, RMDs will apply.
What to Do When a Parent Dies and You’re the Executor
3 options for your inherited IRA
The options for adults inheriting an IRA from a parent are:
- Disclaim the inherited account. Though uncommon, you have the option to refuse the inherited IRA which would allow the assets to pass to another beneficiary.
- Take a lump sum distribution. To avoid the ongoing tracking and annual withdrawal requirements, you could opt to take the money out at once. There’s no 10% early withdrawal penalty on an IRA inherited from a parent. Taking a lump sum is typically only advisable when there’s a urgent and unmet need for liquidity or when the inherited account is very small.
- Open an inherited IRA. This is the most common approach. You can open an inherited IRA at the financial institution of your choosing – it doesn’t have to be where your parents had their accounts. Again, a financial advisor can help you with the process to avoid unintended mistakes. For example, you’ll need to do a direct transfer between financial institutions.
Inherited IRAs and taxes
Inheriting a traditional or rollover IRA that held pre-tax contributions means distributions are fully taxable to you as regular income. But the account can be reinvested and will continue to grow tax-deferred until distributions are made.
So planning is critical, particularly if you’ve inherited a large 401(k) or IRA. Consider working with your financial and tax advisor to develop a strategy to minimize taxes and ensure the approach aligns with the rest of your financial situation.
Taxes on Roth IRAs and after-tax contributions
The rules for inherited Roth IRAs are a bit different. If it’s been at least five years since the account owner’s initial contribution, distributions are tax-free. The account is still subject to the 10-year rule.
If your parent made after-tax non-Roth contributions to an IRA, you’ll need to find the records to prove it in order to exclude withdrawals from your taxable income on a pro-rata basis. If you aren’t sure, can’t locate the records, or if the backup doesn’t exist, you’ll have to pay taxes on the income (double taxation).
Planning strategies for inherited IRAs
Tax planning
Inherited IRAs can require a lot of planning. By working with a tax and financial advisor, you can take steps to avoid adverse tax consequences and take advantage of ways to optimize distributions. After all, most distributions from an inherited retirement account will be taxable as ordinary income.
Example strategies:
- Accelerating distributions during low income years
- Deferring withdrawals or only taking the minimum during high income years
- State tax considerations such as residency changes
- Planning around other windfalls or sudden wealth events
- Considering the possible impact on college financial aid eligibility or Medicare premiums
- Filling up a tax bracket
- Equalizing annual distributions
- Planning around a retirement date
Financial planning and investing
After receiving an inheritance, there’s a lot to consider. The inheritance money should align with your life stage, financial situation, risk profile, and goals. This can look a lot different than your parents’ profile. Getting personal financial advice for your inheritance should be a top priority.
Example strategies:
- Reinvesting distributions from an inherited IRAs in a brokerage account
- Coordinating the approach with any other assets you inherit. The tax treatment of an inheritance depends on the type of asset you inherit. For example, an inherited IRA is taxed differently than an inherited home or brokerage account, which receive a step-up in basis. These assets also have different risk and liquidity profiles
- Considering the best investment strategy to manage tax-deferred growth and risk. This will also depend on your withdrawal strategy and expectation for cash needs
- Revisiting your estate plan in light of major changes to your net worth
Help managing your inheritance
There’s a lot to consider after inheriting an IRA from a parent or relative and this article is only the tip of the iceberg. For help navigating options on your inheritance, please schedule a consultation with an advisor. Darrow Wealth Management is a fee-only wealth management firm and fiduciary specializing in helping individuals who experience a large windfall from an inheritance.
Book a no-obligation consultation with an inheritance advisor
¹Beneficiary details:
- Assumes the parent named the adult beneficiary outright on the IRA (e.g. the beneficiary was not a trust or missing)
- Successor beneficiaries, e.g. people that inherit an IRA from someone other than the original IRA owner, may have different rules, which is outside the scope of this article. So it’s important to consult a financial advisor and attorney to discuss your situation.
² Required beginning dates for IRAs
For IRAs (other than Roth IRAs), the required beginning date (RBD) is April 1 of the year after the calendar year in which you reach your RMD age. Here are the required beginning dates (RBD) based on birth date:
- Born before 7/1/1949: age 70 1/2
- Born on or after 7/1/49 or in 1950: age 72
- Born between 1951 and 1958: age 73
- Born in 1960 or later: age 75
- If you were born in 1959, there’s an issue with the writing of the law and federal guidance is needed to determine if the RBD is 73 or 75
[Last reviewed September 2025]
