Inherited IRA & Required Minimum Distribution (RMD) Rules

What Are Required Minimum Distributions (RMDs)?

Required minimum distributions (RMDs) are mandatory annual withdrawals that the IRS requires from most tax-deferred retirement accounts once the account holder reaches a certain age. These rules apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k) plans, 403(b) plans, 457(b) plans, and other employer-sponsored defined contribution plans. The purpose of RMDs is to ensure that money held in tax-advantaged retirement accounts is eventually withdrawn and taxed as income, rather than being indefinitely sheltered from taxation or passed to heirs without ever being taxed.

RMDs are calculated based on the account balance as of December 31 of the prior year divided by a life expectancy factor from IRS distribution tables. The resulting amount must be withdrawn and included in taxable income for the year. Failing to take the required distribution triggers significant tax penalties, making it essential for retirees to understand when RMDs begin, how they are calculated, and how to comply with the rules.

It is important to note that RMDs represent the minimum amount that must be withdrawn. Account holders are always free to withdraw more than the required amount. However, withdrawing only the minimum allows the remaining balance to continue growing tax-deferred within the account for as long as possible.

RMD Age Thresholds

The age at which RMDs begin has changed multiple times in recent years due to legislative changes designed to give Americans more time to grow their retirement savings before being forced to take distributions.

Under the original rules, RMDs began at age 70-1/2. The SECURE Act of 2019 raised this age to 72 for individuals who turned 70-1/2 after December 31, 2019. The SECURE 2.0 Act of 2022 further increased the RMD starting age in two phases:

• Age 73: Applies to individuals who turn 72 after December 31, 2022, and turn 73 before January 1, 2033. This means anyone born between 1951 and 1959 begins RMDs at age 73.
• Age 75: Applies to individuals who turn 74 after December 31, 2032. This means anyone born in 1960 or later will not be required to begin RMDs until age 75.

For the first RMD year only, account holders have until April 1 of the following year to take their initial distribution. However, delaying the first RMD to the following year means taking two RMDs in that year (the delayed first-year RMD plus the current-year RMD), which could push the account holder into a higher tax bracket. Most financial planners recommend taking the first RMD in the year it becomes due to avoid this doubling effect.

For employer-sponsored plans (401(k), 403(b), 457), there is a still-working exception. If you are still employed by the company that sponsors the plan and do not own more than 5% of the business, you can delay RMDs from that specific employer plan until you retire. This exception does not apply to IRAs or to plans from previous employers.

How to Calculate Your RMD

The RMD calculation is straightforward but must be performed correctly for each retirement account subject to the requirement. The basic formula is:

The IRS provides three life expectancy tables for calculating RMDs. The Uniform Lifetime Table is used by most account holders. The Joint and Last Survivor Table is used when the sole beneficiary of the account is a spouse who is more than 10 years younger than the account holder, which results in a lower RMD. The Single Life Expectancy Table is used by beneficiaries of inherited IRAs.

Key calculation rules to be aware of include:

• Multiple accounts: If you have multiple traditional IRAs, you must calculate the RMD for each IRA separately based on each account's balance. However, you may withdraw the total IRA RMD amount from any one or combination of your traditional IRAs. This flexibility does not extend across account types. RMDs from 401(k) plans must be taken from each 401(k) separately.
• Updated tables: The IRS updated its life expectancy tables effective January 1, 2022, generally resulting in slightly lower RMDs (and therefore lower taxes) than under the previous tables. Always use the most current IRS tables for your calculations.
• Deadline: RMDs for each year must be taken by December 31. The only exception is the first RMD year, which has an April 1 deadline of the following year.

Inherited IRA Rules Under the SECURE Act

The SECURE Act of 2019 fundamentally changed the rules for beneficiaries who inherit retirement accounts. Before the SECURE Act, non-spouse beneficiaries could "stretch" distributions from an inherited IRA over their own life expectancy, allowing the account to continue growing tax-deferred for decades. This stretch IRA strategy was a powerful estate planning and wealth transfer tool.

The SECURE Act replaced the stretch IRA with a 10-year rule for most non-spouse beneficiaries. Under this rule, the entire balance of an inherited IRA must be distributed by the end of the tenth year following the year of the original account holder's death. There is no annual RMD requirement during the 10-year period; the beneficiary can withdraw any amount at any time as long as the entire balance is emptied by the end of year 10.

However, the IRS issued proposed regulations in 2022 that added a significant complication. For inherited accounts where the original owner had already begun taking RMDs (meaning they died at or after their RMD starting age), the IRS proposed that beneficiaries must take annual RMDs during years 1 through 9 based on their own life expectancy AND empty the account by the end of year 10. This means the 10-year rule is not simply a lump-sum deadline in all cases.

The application of these rules depends on whether the original account holder died before or after their RMD beginning date, and whether the beneficiary qualifies as an eligible designated beneficiary (discussed below).

Eligible Designated Beneficiaries

The SECURE Act created a special category of eligible designated beneficiaries (EDBs) who are exempt from the 10-year rule and may still use the stretch IRA strategy, taking distributions over their own life expectancy. This exception applies to five specific categories of beneficiaries.

Beneficiary Type	Distribution Rule	Key Details
Surviving Spouse	Stretch over own life expectancy, or roll into own IRA, or elect 10-year rule	Most flexible options. Can delay RMDs until the deceased spouse would have reached RMD age. Can treat the inherited IRA as their own through a spousal rollover.
Minor Child of the Deceased	Stretch over child's life expectancy until age of majority; then 10-year rule begins	Applies only to children of the account holder, not grandchildren or other minors. Age of majority is defined as 21 under the SECURE Act. Once the child reaches 21, the remaining balance must be distributed within 10 years.
Disabled Individual	Stretch over own life expectancy	Must meet the IRS definition of disability under IRC Section 72(m)(7): unable to engage in any substantial gainful activity due to a physical or mental condition that is expected to be of long-continued or indefinite duration or result in death.
Chronically Ill Individual	Stretch over own life expectancy	Must be certified as chronically ill as defined by IRC Section 7702B(c)(2): unable to perform at least two activities of daily living for at least 90 days, or requires substantial supervision due to cognitive impairment.
Individual Not More Than 10 Years Younger	Stretch over own life expectancy	Applies to any beneficiary (siblings, friends, domestic partners) who is not more than 10 years younger than the deceased account holder. This category recognizes that such beneficiaries are likely of a similar generation.

All other designated beneficiaries, including adult children, grandchildren, siblings more than 10 years younger, friends, and most trust beneficiaries, are subject to the 10-year rule. Non-designated beneficiaries (such as estates, charities, and certain trusts) have different distribution requirements, generally either a 5-year rule or distribution based on the deceased's remaining life expectancy.

Penalties for Missing RMDs

The penalty for failing to take a required minimum distribution was historically one of the harshest tax penalties in the Internal Revenue Code. Prior to the SECURE 2.0 Act, the penalty was 50% of the amount that should have been withdrawn but was not. This meant that if your RMD was $20,000 and you failed to take it, you would owe a $10,000 penalty in addition to the income taxes on the eventual distribution.

The SECURE 2.0 Act reduced this penalty to 25% of the missed RMD amount, and further reduced it to 10% if the missed RMD is corrected within a specified correction window (generally by the end of the second year following the year the RMD was missed, or by the date a notice of deficiency is issued). While these reduced penalties are more reasonable, they still represent a significant financial consequence that can be entirely avoided through proper planning and compliance.

To avoid penalties, consider these practical steps:

• Set up automatic distributions: Most IRA custodians and 401(k) administrators offer automatic RMD calculation and distribution services. Enrolling in automatic distributions eliminates the risk of forgetting or miscalculating.
• Calendar reminders: If you prefer to manage distributions manually, set multiple calendar reminders well before the December 31 deadline.
• Take distributions early in the year: Waiting until December creates the risk that administrative delays, processing errors, or market disruptions could prevent timely completion.
• File IRS Form 5329: If you do miss an RMD, file Form 5329 with your tax return, along with a reasonable explanation for the missed distribution and evidence that you have since corrected the shortfall. The IRS has historically been willing to waive penalties for first-time or inadvertent failures when the shortfall is corrected promptly.

Strategies to Minimize RMD Tax Impact

RMDs are taxed as ordinary income, which can push retirees into higher tax brackets and trigger additional taxes on Social Security benefits, higher Medicare premiums (through IRMAA surcharges), and reduced eligibility for certain tax credits and deductions. Several strategies may help manage the tax impact of mandatory distributions.

Roth conversions before RMDs begin: Converting traditional IRA funds to a Roth IRA in the years between retirement and the RMD starting age (or during lower-income years) can reduce the balance subject to future RMDs. While the conversion itself is a taxable event, it moves money into an account that grows tax-free and is not subject to RMDs during the owner's lifetime. This strategy is particularly effective when the account holder expects to be in a higher tax bracket during the RMD years than during the conversion years.

Qualified Charitable Distributions (QCDs): Account holders who are age 70-1/2 or older can direct up to $105,000 per year (indexed for inflation) from their traditional IRA directly to a qualified charity. This QCD satisfies the RMD requirement but is excluded from taxable income. QCDs are one of the most tax-efficient ways to satisfy RMDs for retirees who make charitable donations, as the distribution is not included in adjusted gross income even though it counts toward the RMD.

Strategic withdrawal timing: In years when other income is lower (for example, the year between retirement and starting Social Security), taking larger voluntary distributions from tax-deferred accounts can reduce future account balances and therefore future RMDs. This "filling up" lower tax brackets in early retirement years can result in lower lifetime taxes compared to waiting for larger RMDs at age 73 or later.

Asset location: Placing investments with the highest expected growth (such as stock funds) in Roth accounts and investments with lower expected growth (such as bonds) in traditional IRA accounts can limit the growth of the traditional IRA balance, thereby reducing future RMDs. This asset location strategy does not change your overall portfolio allocation but optimizes which accounts hold which assets.

Qualified longevity annuity contracts (QLACs): A QLAC is a deferred income annuity purchased with IRA or 401(k) funds that begins payments at a future date, typically age 85. Up to $200,000 (as adjusted under SECURE 2.0) of retirement account assets can be used to purchase a QLAC, and the amount used is excluded from the account balance for RMD calculations until the annuity payments begin. This effectively defers RMDs on a portion of the retirement account balance.

Roth IRA RMD Advantages

Roth IRAs hold a unique advantage in the RMD landscape: they are not subject to required minimum distributions during the original account owner's lifetime. This means Roth IRA balances can continue to grow tax-free indefinitely, and the owner can choose when and how much to withdraw based entirely on their own needs rather than IRS requirements.

This RMD exemption makes Roth IRAs particularly valuable for several purposes:

• Legacy planning: Roth IRAs that are never drawn down during the owner's lifetime can be passed to beneficiaries, who will receive the distributions tax-free (though they are still subject to the 10-year distribution rule under the SECURE Act for most non-spouse beneficiaries). This can be a significant wealth transfer advantage compared to traditional IRAs, where beneficiaries must pay income tax on every distribution.
• Tax bracket management in retirement: Because Roth withdrawals are not included in taxable income, they do not affect Social Security taxation thresholds, Medicare premium calculations, or eligibility for income-based tax credits and deductions. Retirees can use Roth withdrawals to supplement their income without any tax consequences.
• Longevity insurance: Retirees who live longer than expected benefit from having a Roth IRA that has continued to grow tax-free without being depleted by mandatory distributions. The Roth IRA serves as a reserve of tax-free funds available for later years when healthcare costs and other expenses may increase.

It is important to note that Roth 401(k) accounts were previously subject to RMDs, but the SECURE 2.0 Act eliminated this requirement effective for tax years beginning in 2024. Roth 401(k) participants are no longer required to take distributions or roll over to a Roth IRA to avoid RMDs. This change makes Roth 401(k) accounts significantly more attractive for long-term retirement savings.

For beneficiaries of inherited Roth IRAs, the 10-year distribution rule applies (for most non-spouse beneficiaries), but the distributions themselves are tax-free as long as the Roth IRA satisfied the five-year holding period before the original owner's death. This means the beneficiary must empty the account within 10 years but pays no income tax on any of the distributions, making inherited Roth IRAs one of the most tax-efficient forms of wealth transfer available.