Inherited IRA Annual Withdrawals: The Year-End Check Most Heirs Miss

Start with which group you are in. A surviving spouse, a minor child of the owner, a disabled or chronically ill person, and someone not more than 10 years younger than the owner are eligible designated beneficiaries, and can generally stretch withdrawals over their own life expectancy. Everyone else who qualifies as a designated beneficiary, which includes most adult children, grandchildren, and siblings more than 10 years younger, is a non-eligible beneficiary and falls under the 10-year rule: the account must be empty by December 31 of the 10th year after the owner's death. This article covers that second group. The mechanics of the rule itself are on the site's 10-year rule page, so this one concentrates on the annual test.

The annual test turns on the owner's required beginning date, meaning the date the owner's own RMDs had begun or were due to begin. If the owner died on or after it, you must also take an RMD in each of years 1 through 9 and then close out the account by the end of year 10. If the owner died before it, there is no annual requirement, only the 10-year deadline. An inherited Roth IRA is treated as if the owner died before the required beginning date, so no annual RMD applies, but the 10-year deadline still does. Confirm the owner's date of death and status in writing from the custodian before assuming either way.

The IRS final regulations issued in July 2024 confirmed this structure. For several years before that, many heirs were unsure whether annual amounts were required at all, so the IRS waived penalties for missed annual RMDs for 2021 through 2024. Annual RMDs under the 10-year rule are enforced starting with 2025. If you inherited from someone who had started RMDs and you skipped 2025, that is a live problem now, not a historical one. The practical step is to bring it to a tax preparer early, because the correction and any waiver request run through Form 5329.

The annual amount for a non-eligible heir is the prior December 31 balance divided by a life expectancy factor from the IRS single life table. The factor is based on your age in the year after the owner's death, and it drops by 1 each year after that. Your custodian or tax preparer should run the calculation, but it helps to know what the answer should look like. As an illustration only, a $400,000 balance with a factor of 25.0 gives a required withdrawal of $16,000 for that year. Treat that as a sanity check on the figure you receive, not as your number.

The deadline is December 31 each year, and the penalty for missing it is 25% of the shortfall, reduced to 10% if you correct it within the correction window. On a missed $16,000, that is $4,000 at 25% or $1,600 at 10%. You report it on Form 5329, and a request to waive the penalty for reasonable cause is possible. Whether your facts support a waiver is a question for your tax preparer. Do not assume it will be granted, and do not wait for a notice before acting, because the 10% rate depends on correcting the miss within the correction window.

A few handling rules trip people up. Inherited IRA RMDs cannot be rolled over, and they cannot be combined with your own IRA RMDs. RMDs for IRAs inherited from the same owner can generally be combined, but confirm that with your preparer before relying on it, and never assume it works across IRAs inherited from different people. If several heirs share one account, it must generally be split into separate inherited accounts by December 31 of the year after the death for each heir's rules to apply to their own share. Distributions are ordinary income, and Arizona taxes them at its flat 2.5% rate.

Treat the year-end check as four questions. First, is this account subject to annual RMDs at all, based on the owner's date of death and required beginning date? Second, has the right amount left each custodian, with every inherited account counted separately? Third, is there enough tax withholding? Tax withheld from an IRA distribution is treated as paid evenly through the year, so a December distribution can cover the full year's tax. Fourth, is the 10-year clock on track, meaning the balance is shrinking at a pace that makes the final year manageable? The first three are compliance. The fourth is where the money is.

Waiting until year 10 is the costliest default. Consider an illustrative heir: single, with $200,000 of other income, in the 24% bracket, who inherits a $500,000 traditional IRA from an owner who died before the required beginning date, so no annual withdrawal is required. If nothing comes out and the balance grows at 5%, it reaches about $814,000 by year 10. Taken in one year, that pushes taxable income to roughly $998,000, and most of the distribution is taxed at 35% or 37%. Taking level withdrawals of about $64,750 a year instead keeps taxable income near $249,000, and the average federal rate on the withdrawals falls from about 35% to about 30%. Arizona's 2.5% is flat, so the state share barely changes. The federal bracket structure is what rewards spreading the income.

That example holds the heir's other income constant, which real life does not. If your income is likely to fall, say because you plan to retire during the 10 years, leaning later can be reasonable. If you are in peak earning years now, or expect a bonus, a sale, or a spouse's income to rise, pulling more out early at lower brackets can be better. Near age 63, a larger withdrawal can also raise Medicare premiums two years later through IRMAA. A projection against your own income in each of the 10 years, not a rule of thumb, is what answers this.

If you are 70 1/2 or older, a qualified charitable distribution from an inherited IRA is possible and can count toward the year's required amount, which the site explains separately. The inherited account does not get a step-up in basis, so every dollar is taxable when it comes out. Our estate-planning role here is income-tax planning and coordination: when to withdraw, how much, and how it fits your return. Questions about trusts as beneficiaries, probate, or the owner's documents belong with an estate attorney.

• Assuming the 10-year rule means nothing is due until year 10, when an owner who had already started RMDs means you owe an annual withdrawal in years 1 through 9 as well.
• Relying on the custodian to calculate and send the right amount, when custodians do not always flag successor or inherited-account RMDs accurately and the penalty lands on you.
• Counting an inherited IRA RMD as part of your own RMD, or rolling it over, when inherited RMDs cannot be combined with your own and cannot be rolled over.
• Taking the withdrawal from one custodian and assuming the rest is covered, when each inherited account at each custodian needs to be checked.
• Skipping 2025 because the penalty relief covered 2021 through 2024, when annual RMDs under the 10-year rule are enforced starting with 2025.
• Leaving the account untouched until year 10 and paying one very large year of ordinary income at the highest brackets, plus 2.5% to Arizona.
• Taking a large withdrawal with no tax withheld, then owing a lump sum at filing or an underpayment penalty, when withholding on a December distribution counts as paid evenly through the year.