When a non-eligible designated beneficiary (NEDB) inherits a traditional or Roth IRA from someone who died in 2020 or later, the SECURE Act generally requires the account to be distributed in full by December 31 of the 10th year following the original owner’s death. NEDBs include most adult individuals who are not spouses, not disabled or chronically ill, not minor children of the decedent, and not within 10 years of the decedent’s age. This rule can create a sizable tax planning puzzle, especially given evolving guidance on whether annual required minimum distributions (RMDs) are needed in years one through nine when the decedent died on or after their required beginning date (RBD). As of 2024, the IRS has provided transitional relief for missed RMDs under the proposed regulations, so it’s prudent to check the latest guidance before finalizing a distribution plan.

Key definitions matter. The RBD is the age at which the original owner must begin RMDs (generally 73 starting in 2023; it was 72 for certain earlier years and is scheduled to rise to 75 in 2033). If the decedent died before their RBD, current proposals suggest a NEDB may have no annual RMDs and only needs to empty the account by the end of year 10. If the decedent died on or after the RBD, proposed rules would require annual RMDs based on the “ghost” life expectancy method in years one through nine, with the remaining balance fully distributed by year 10. Roth IRAs have no lifetime RMDs for owners; under proposals, beneficiaries typically have no annual RMDs but must still satisfy the 10-year cleanout. Rules for 2019 and prior deaths differ (often allowing a life-expectancy “stretch”), so ensure you’re applying the correct framework to the correct date of death.

Investment strategies

Within the 10-year window, consider a schedule that manages tax brackets and cash needs. Some beneficiaries spread withdrawals evenly to keep annual income steady and avoid bracket spikes. Others back-load distributions, allowing additional tax-deferred or tax-free growth but risking a large lump-sum in year 10. A middle path is to harvest income strategically in high-deduction years—such as years with sizeable charitable gifts or business losses—to offset taxable withdrawals. For inherited Roth IRAs, distributions are generally tax-free if the decedent’s Roth met the 5-year holding requirement; otherwise, earnings may be taxable, so sequencing matters. Charitably inclined beneficiaries who are age 70½ or older may consider qualified charitable distributions (QCDs) from inherited IRAs, which can satisfy RMDs where required and exclude amounts from income, subject to IRS limits.

Insurance coverage considerations

Inherited IRA withdrawals can increase taxable income, which may reduce eligibility for certain credits or increase Medicare IRMAA surcharges. Some households use life insurance as a liquidity tool in broader estate plans to help heirs cover taxes or replace income without increasing taxable income in the year of payout. Review beneficiary designations across insurance policies to ensure proceeds align with your updated estate plan and that contingent beneficiaries are current. While life insurance is not a cure-all, confirming coverage, ownership, and beneficiaries can provide flexibility if distributions push income higher late in the 10-year window.

Financial planning essentials

Start by confirming the beneficiary category and documenting the date of death, the RBD status of the decedent, and whether the year-of-death RMD was satisfied. A beneficiary is responsible for any remaining year-of-death RMD, which must be withdrawn by year-end. Next, set a distribution calendar that coordinates with cash flow, taxes, and other goals. Decide on federal and state tax withholding or plan for quarterly estimated taxes to avoid underpayment penalties. If multiple beneficiaries are named, separate inherited IRA accounts by December 31 of the year following death to preserve individual timing flexibility. For minor children of the decedent who are EDBs, the life-expectancy method can be used until age 21 (based on proposed guidance), after which the 10-year rule begins. Trust beneficiaries require special attention to ensure the trust qualifies as a see-through trust if you want look-through treatment.

Credit score tips while managing withdrawals

The 10-year timetable can temporarily raise income and cash demands. Protect day-to-day credit health by keeping revolving balances low, automating minimum payments, and maintaining an emergency fund so tax payments don’t crowd out other obligations. Plan distributions to avoid cash crunches that could lead to late payments on credit accounts. Monitor utilization ratios on credit cards if you expect large expenses near estimated tax due dates, and consider timing payments before statement closing dates to keep reported balances modest. While tax obligations themselves don’t appear on credit reports, poor cash management can trigger delinquencies on other debts.

Retirement savings implications

An inherited IRA is separate from your own retirement savings and cannot be combined with your personal IRA or workplace plan if you are a non-spouse beneficiary. Continue contributing to your 401(k) or IRA as eligible; deductible contributions may partially offset income from inherited IRA distributions, subject to IRS rules. If you’re navigating variable income—say, due to retirement or semi-retirement—use the 10-year window to smooth taxable income, coordinating with Social Security timing and potential capital gains in your taxable accounts. For Roth beneficiaries, keeping funds invested until later years can enhance tax-free compounding if the 5-year rule is already satisfied, but don’t lose sight of the year-10 deadline. Always use trustee-to-trustee transfers for retitling and avoid taking receipt of funds unintentionally, which can cause irreversible tax issues.

Practical checklist items can reduce errors. Confirm proper titling of the inherited IRA, maintain records of all distributions and withholdings, and revisit your distribution plan annually in light of tax law updates. SECURE 2.0 reduced the excise tax for missed RMDs to 25% (potentially 10% if corrected in a timely manner), and requests for penalty relief are made on IRS Form 5329. Because guidance on annual RMDs for certain NEDBs has been evolving—with penalty relief granted for missed RMDs in specific years—verify the latest IRS notices or final regulations applicable to your situation before executing a back-loaded or front-loaded plan.

In summary, the inherited IRA 10-year rule for non-eligible designated beneficiaries creates a firm endpoint and, in some cases, interim RMD obligations tied to the decedent’s RBD. Aligning withdrawal timing with investment strategies, insurance coverage, financial planning, credit management, and ongoing retirement savings decisions can help you meet deadlines, manage taxes, and keep your broader financial picture on track.