Part 1 — Direct Answer

When you die, your IRA passes directly to the beneficiaries named on your account — bypassing probate entirely. A surviving spouse has the most flexibility, including the option to roll the IRA into their own account and treat it as their own. Non-spouse beneficiaries — children, siblings, other individuals — are generally required under the SECURE 2.0 Act to withdraw the entire balance within 10 years of the original owner's death. Every dollar withdrawn by a non-spouse beneficiary from an inherited traditional IRA is taxable as ordinary income in the year of withdrawal.

Part 2 — Detailed Explanation

The inherited IRA rules are among the most consequential and least understood aspects of retirement planning. Before the SECURE Act of 2019 and SECURE 2.0 of 2022, most non-spouse beneficiaries could stretch distributions from an inherited IRA over their own lifetime — a strategy called the "stretch IRA" that allowed decades of continued tax-deferred growth. That strategy was largely eliminated. For most non-spouse beneficiaries who inherit IRAs from owners who died after December 31, 2019, the 10-year rule now applies.

The 10-year rule requires that the entire balance of an inherited IRA be distributed by the end of the tenth calendar year following the original owner's death. There are no required annual distributions within that 10-year window — a beneficiary could take nothing for nine years and the full balance in year ten — but the account must be emptied by the deadline. The IRS issued proposed regulations in 2022 that added a layer of complexity: if the original owner had already begun taking RMDs, the beneficiary must also take annual distributions during the 10-year period (not just empty it by year ten). This rule is still being finalized and has created significant confusion among advisors and beneficiaries.

Certain beneficiaries are exempt from the 10-year rule and can still use the lifetime stretch. These "eligible designated beneficiaries" include: surviving spouses, minor children of the original owner (until they reach the age of majority, after which the 10-year rule kicks in), individuals who are not more than 10 years younger than the original owner, and individuals who are disabled or chronically ill. Everyone else — including adult children — is subject to the 10-year rule.

The tax implications for heirs are significant. If a parent dies with $1M in a traditional IRA and leaves it to two adult children, each child inherits a $500,000 traditional IRA and must withdraw the full balance within 10 years. If each child is in their peak earning years — earning $200,000 annually — adding $50,000 per year in IRA distributions pushes their income into higher brackets, potentially into the 32% or 37% range. The same $1M that was growing tax-deferred could face a much higher effective tax rate in the hands of the heirs than it would have in the hands of the original owner.

This is one of the most compelling arguments for Roth conversions during the owner's lifetime. A Roth IRA inherited by a non-spouse beneficiary is also subject to the 10-year rule — but the distributions are tax-free. Heirs withdraw a Roth IRA with no income tax consequences, regardless of their own tax bracket. Converting pre-tax IRA dollars to Roth during your own lower-income retirement years is often the single most effective legacy planning move available.

Part 3 — What This Means for You

If you have adult children and a large traditional IRA, the 10-year rule means your heirs will be forced to take taxable distributions on a compressed timeline — likely during their own peak earning years. The tax rate on those distributions could easily exceed the rate you would have paid on Roth conversions during your retirement.

Running the numbers often reveals that Roth conversions during your own lifetime — even at 22-24% federal rates — produce better after-tax outcomes for the family than leaving a traditional IRA for heirs to withdraw at potentially 32-37% rates within a forced 10-year window. The math depends on your heirs' expected incomes, but the comparison is worth modeling explicitly.

Part 4 — Common Mistakes and Misconceptions

• The most common mistake is outdated beneficiary designations. IRAs pass by beneficiary designation, not by will. If your IRA still names your ex-spouse, a deceased parent, or doesn't account for children born or grandchildren you want to include, the account won't pass as intended regardless of what your will says. Review beneficiary designations annually.
• The second mistake is naming your estate as beneficiary. This eliminates the spousal rollover option, subjects the account to probate, and removes the stretch or 10-year window for individual beneficiaries. Always name individuals as primary and contingent beneficiaries.
• The third mistake is not coordinating IRA beneficiary designations with the overall estate plan. The attorney drafting your trust may not know what's on file with your IRA custodian. Aligning these is a basic but frequently missed coordination task.