The SECURE Act went into effect January 1, 2020, and it quietly eliminated one of the most powerful wealth-transfer strategies in personal finance. For decades, the 'stretch IRA' allowed non-spouse beneficiaries to take distributions from an inherited IRA over their own life expectancy — sometimes 40+ years. A 35-year-old inheriting a parent's $250,000 traditional IRA could stretch distributions over their remaining life expectancy (roughly 48 years under the old tables), keeping annual distributions small, paying taxes at a low rate each year, and letting the bulk of the account compound tax-deferred for decades.
That's gone now for most people. The SECURE Act replaced it with what the IRS calls the '10-year rule' — a requirement that most non-spouse beneficiaries empty the entire inherited account within 10 years of the original account owner's death. The account doesn't have to be emptied in equal annual installments. It just has to be at zero by December 31 of the 10th year following the year of death. How you get there is up to you — and those decisions have significant tax consequences.
If you recently inherited a traditional (pre-tax) IRA from a parent, this article will walk you through exactly what the rules require, the tax trap that catches most people, the smartest distribution strategy for a $250,000 account, and the special rules for inherited Roth IRAs that most people don't know about.
Who the 10-Year Rule Applies To
Most Adult Children Are Covered — With Important Exceptions
The 10-year rule applies to non-eligible designated beneficiaries who inherit from someone who died after December 31, 2019. In plain English: most adult children who inherit an IRA from a parent are subject to this rule.
The exceptions — people who can still stretch distributions over their lifetime — are:
– Surviving spouses (still have full flexibility; can even roll the inherited IRA into their own IRA)
– Minor children of the deceased account owner (can stretch until they reach legal majority, then the 10-year clock starts)
– Disabled or chronically ill individuals (specific IRS definitions apply)
– Beneficiaries who are no more than 10 years younger than the original account owner (a sibling close in age, for example)
If you are an adult child, niece, nephew, non-spouse partner, or friend inheriting an IRA from someone who died in 2020 or later, the 10-year rule almost certainly applies to you.
The RMD Confusion: The IRS Clarification Nobody Told You About
Whether You Must Take Annual Distributions Depends on One Fact About the Original Owner
The 10-year rule has a wrinkle that caused tremendous confusion until the IRS issued guidance in 2022 and 2023 — and that many financial advisors still get wrong.
The key question: Did the original IRA owner die before or after their Required Beginning Date (RBD)?
The RBD is April 1 of the year following the year you must start taking required minimum distributions (RMDs). For someone born in 1951 or later under SECURE Act 2.0, RMDs begin at age 73. The RBD would be April 1 of the year after they turn 73.
If the original owner died BEFORE their RBD (before they had to start taking RMDs):
You do not have to take any distributions in years 1-9. You could let the entire account sit and grow for 9 years, then take everything in year 10. You have maximum flexibility on timing.
If the original owner died ON OR AFTER their RBD (they had already started taking RMDs):
You must take annual distributions during years 1-9 (based on your own life expectancy under IRS tables), AND you must empty the account by year 10. You cannot skip years 1-9 and take everything at the end.
This distinction matters enormously for tax planning. A 70-year-old who dies before starting RMDs gives their 45-year-old child maximum flexibility. A 75-year-old who had been taking RMDs for two years forces annual distributions on the beneficiary immediately.
The $250,000 Tax Trap: What Happens When You Take It All at Once
A Real Scenario That Costs $25,000 in Unnecessary Taxes
Many people inherit a traditional IRA, see $250,000 sitting there, and think: I could use this for a house, or pay off debt, or invest it myself. They take the full distribution in the year of inheritance. Here's what that actually costs.
Scenario A: Take the entire $250,000 in year 1
Beneficiary earns $85,000/year in salary.
Year of distribution income: $85,000 (salary) + $250,000 (IRA distribution) = $335,000 total income
The $250,000 IRA distribution is taxed at marginal rates. At $335,000 total income (2024 MFJ brackets):
– Portions hit the 24%, 32%, and 35% brackets depending on filing status and deductions
– Estimated federal income tax on the IRA distribution alone: approximately $65,000-75,000
– Plus state income tax (varies by state; 0% in TX/FL, up to 13% in CA)
Net received after federal tax: approximately $175,000-185,000 out of the $250,000
Scenario B: Spread $25,000/year over 10 years
Same beneficiary earning $85,000/year in salary.
Annual income with IRA distribution: $85,000 + $25,000 = $110,000
The $25,000 IRA distribution is taxed at the marginal rate at $110,000 income — approximately 22% federal.
Annual federal tax on the $25,000 distribution: approximately $5,500
Total federal tax across 10 years: approximately $55,000
Tax savings from spreading distributions: $10,000-20,000 in federal taxes alone.
The account also continues to grow tax-deferred during the 10 years in Scenario B. If the $250,000 earns 7% annually and you take $25,000 out each year, the account is worth approximately $280,000 at the end of year 5 (growth partially offsetting withdrawals) before declining toward zero by year 10. You end up withdrawing considerably more than $250,000 total — you withdraw the principal plus a decade of growth — while paying taxes on it at a lower annual rate.
The Smartest Distribution Strategy for a $250,000 Traditional IRA
Matching Distributions to Your Tax Bracket
The optimal strategy isn't always exactly equal annual distributions. It's withdrawing up to the top of your current tax bracket each year without crossing into a significantly higher one.
For someone in the 22% bracket (2024 married filing jointly: $94,300-$201,050 in taxable income):
– Identify how much room you have in the 22% bracket each year
– If your normal taxable income is $75,000, you have approximately $19,300 of 22% bracket space
– Take $19,000-20,000/year from the inherited IRA at 22% marginal rate
– If you enter a lower-income year (job change, maternity/paternity leave, partial-year work), consider taking more from the IRA — you might pay 12% on some of it
– If you enter a higher-income year (bonus, large capital gain, second income), take less or skip the voluntary distribution
The goal is to spread the tax burden evenly across the 10-year window at rates you control, rather than having large amounts pushed into higher brackets. A guide to IRA rules and distribution planning by Ed Slott — the most respected authority on IRA tax strategy — is worth reading before making any distribution decisions. The strategies that save $15,000-25,000 in taxes on a $250,000 inherited IRA are not complex, but they require understanding the rules before the distributions happen.
For context on how inherited IRA distributions interact with other retirement income and why tax bracket management matters across multiple income sources, our overview of the optimal withdrawal order from 401k, Roth, and taxable accounts in retirement covers the same bracket-management logic from the retiree perspective. And for understanding why a Roth conversion strategy in your 50s can reduce the size of the traditional IRA you leave to your heirs (making the inherited IRA rules less relevant for your own estate), our analysis of Roth conversions at 58 and how much to convert per year explains the math.
The Inherited Roth IRA: Completely Different Math
The 10-Year Rule Still Applies — But Distributions Are Tax-Free
If you inherited a Roth IRA (rather than a traditional IRA), the 10-year rule still applies — you must empty the account within 10 years of the original owner's death. But the distributions are completely income-tax-free, because the original owner already paid taxes on the contributions.
This creates an obvious strategy: let the inherited Roth grow as long as possible, then take it all in year 10.
$100,000 inherited Roth IRA at 7% annual growth, untouched for 9 years: approximately $183,000
Tax on the $183,000 distribution in year 10: $0
For a traditional IRA, taking everything in year 10 creates a large taxable event. For a Roth IRA, waiting until year 10 is almost always the right answer — you maximize the tax-free growth window and pay nothing when you finally take the distribution.
The only exception: if you have unusually low income in an early year (year 1 or 2 after inheritance), you could take some of the Roth early and invest it in a taxable brokerage account — the difference is simply the investment account type, since you're not saving any taxes by accelerating Roth distributions. In most cases, let it sit and grow tax-free as long as the 10-year window allows.
Surviving Spouse Special Rules
If you are the surviving spouse inheriting an IRA, the rules are considerably more favorable:
– You can roll the inherited IRA into your own IRA and treat it as if you always owned it. Your own RMD schedule applies, based on your age. This is typically the best option if you don't need the money immediately.
– Alternatively, you can treat it as an 'inherited IRA' under the old rules, allowing you to delay RMDs until the original owner would have turned 73 (useful if the deceased was older than you)
– Surviving spouses are exempt from the 10-year rule entirely
Three Mistakes to Avoid
Mistake 1: Taking the full distribution in year 1 for a large purchase.
Understandable impulse. Terrible tax math. If you want the inherited IRA funds for a down payment, take what you need over 2 years instead of 1. The tax savings on splitting a $100,000 withdrawal into two $50,000 withdrawals across tax years can easily exceed $5,000-10,000 depending on your other income.
Mistake 2: Forgetting the account exists and missing the 10-year deadline.
The IRS charges a 25% penalty (reduced to 10% if corrected quickly) on amounts that should have been distributed but weren't. If your account requires annual distributions (owner died after RBD) and you miss a year, you'll owe the 25% penalty plus taxes on the amount that should have come out. Set a calendar reminder for every December to review the account and ensure you're on pace.
Mistake 3: Leaving the money in cash inside the inherited IRA.
Many people inherit an IRA, feel uncertain about investing it, and leave it in a money market fund or cash position inside the inherited account. This is a real cost — at 7% annual growth, $250,000 grows to approximately $491,000 over 10 years if invested in a diversified index fund. Left in cash at 4.5% (current HYSA rates inside an IRA), it grows to $385,000. The difference is $106,000 in growth, fully accessible within the 10-year window. An inherited IRA is still an investment account — treat it like one. A straightforward index fund investing guide covers the low-complexity approach most inherited IRA beneficiaries should use — diversified index funds, minimal fees, set and monitored annually — until each year's distribution is taken.
The inherited IRA rules changed enough in 2020 that the strategies your parents used and the advice you might find in older financial planning resources no longer apply. The 10-year rule is the framework, bracket management is the strategy, and the single biggest win — for most adult children inheriting $100,000-$500,000 from a parent — is simply not taking more than your tax bracket can absorb in any single year. The money will be taxed. The question is at what rate, and that's something you can actually control. For a deeper understanding of how traditional IRA accounts work and how to use a Roth IRA for your own retirement savings alongside an inherited traditional IRA you're managing simultaneously, our complete Roth IRA guide covers contribution limits, income eligibility, and how the two account types interact.