Inherited IRA Planning Guide: Navigating SECURE Act 2.0 Rules, RMDs, and Tax Strategies

Something big has happened. You lost someone, and now an account with their name on it has yours. Before this is a tax problem, it is a loss, and one reframe is worth holding onto from the start, an inheritance is the last act of care from someone who loved you, and how you handle it is how that care actually lands.

Here is the part science can actually help with. Our brains do not think well right after a loss. Research links grief to real, measurable declines in attention, processing speed, and decision-making, especially in the early months (Ward, Mathias, and Hitchings, Gerontology, 2007). One long-term population study found that prolonged grief was associated with worse executive function and faster cognitive decline over seven years (Saavedra Perez et al., American Journal of Geriatric Psychiatry, 2018). If your thinking feels foggy right now, that is biology, not a character flaw. It is also exactly why a clear playbook matters. This guide moves slowly and in order so you do not have to hold everything in a mind that is busy doing harder work.

The playbook itself has also changed, and that is what makes this guide timely. The rules for inherited IRAs were rewritten by the SECURE Act in 2019 and again by SECURE Act 2.0 in 2022, and the IRS only settled how those rules actually work with final regulations in 2024. If the person you lost died after December 31, 2019, the distribution rules you face are not the ones your parents planned under.

This guide walks through what happens when you inherit an IRA, the current distribution rules, how to calculate required minimum distributions, step-up in basis for non-retirement assets, tax planning strategies, and a practical checklist for your first 90 days. Let's take it one step at a time.

1. What Happens When You Inherit an IRA

When you inherit an IRA, you become a beneficiary with specific distribution obligations tied to your relationship with the original owner and the date of their death. The first thing to understand is that an inherited IRA is not the same as your own IRA. You cannot treat it as your own account unless you are the surviving spouse and choose to roll it over or assume ownership.

The original account holder names beneficiaries on the IRA beneficiary designation form. That form, not the will, controls who receives the IRA. If no beneficiary is named, the IRA may pass to the estate, which can trigger faster distribution requirements and higher taxes.

Your beneficiary category determines your distribution options. Under current law, beneficiaries fall into several categories:

• Eligible designated beneficiaries may take distributions over their own life expectancy. This category includes surviving spouses, minor children of the account owner, disabled individuals, chronically ill individuals, and individuals not more than 10 years younger than the deceased.
• Non-eligible designated beneficiaries must follow the 10-year rule. This includes most adult children, siblings, friends, and other named beneficiaries who do not qualify as eligible designated beneficiaries.
• Non-designated beneficiaries such as estates and certain trusts face different rules, often requiring distribution within five years if the owner died before their required beginning date.

The date of death matters more than most people realize. If the original owner died on or before December 31, 2019, the old rules generally apply, which allowed most beneficiaries to stretch distributions over their own life expectancy. If the owner died on or after January 1, 2020, the SECURE Act rules govern, and most non-spouse beneficiaries must empty the account within 10 years.

Which Inherited IRA Rule Applies to You?

2. The SECURE Act 2.0 Rule Changes Explained

The SECURE Act of 2019 eliminated the "stretch IRA" for most beneficiaries, and SECURE Act 2.0 of 2022 refined several provisions while keeping the 10-year rule framework intact. The Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law on December 20, 2019. It changed the inherited IRA landscape by replacing the life expectancy stretch with a 10-year distribution requirement for most beneficiaries.

SECURE Act 2.0, signed into law on December 29, 2022, made further adjustments. While it did not restore the stretch IRA, it introduced several provisions that affect inherited accounts:

• It raised the age for required minimum distributions (RMDs) to 73 for individuals born between 1951 and 1959, and to 75 for those born in 1960 or later. This affects whether the original owner had already begun taking RMDs at the time of death, which in turn affects the beneficiary's obligations.
• It allowed surviving spouses to elect to be treated as the deceased spouse for RMD purposes, effectively delaying distributions until the deceased spouse would have reached their required beginning date.
• It confirmed that Roth IRA owners are not subject to RMDs during their lifetime, but beneficiaries who inherit Roth IRAs are still generally subject to the 10-year rule.

The IRS issued final regulations in July 2024 that resolved a major ambiguity about annual distributions during the 10-year period. The final regulations confirmed that if the original owner died on or after their required beginning date, the date they were required to begin taking RMDs, non-eligible designated beneficiaries must take annual distributions during years 1 through 9 of the 10-year period, in addition to emptying the account by the end of year 10. If the owner died before their required beginning date, annual distributions during years 1 through 9 are generally not required, but the account must still be emptied by year 10 (IRS Publication 590-B, 2025).

The IRS also provided transition relief through Notice 2024-35, which waived the excise tax for missed annual RMDs in 2021 through 2024 for certain beneficiaries. Starting in 2025, however, the annual distribution requirement applies, and beneficiaries who miss required distributions may face a 25 percent excise tax on the shortfall, which can be reduced to 10 percent if corrected in a timely manner (IRS Notice 2024-35).

3. The 10-Year Rule vs. the Life Expectancy Rule

The distinction between the 10-year rule and the life expectancy rule is the single most important factor in determining your distribution timeline. These two frameworks apply to different beneficiary categories, and understanding which one applies to you shapes every other decision.

The 10-Year Rule

The 10-year rule applies to most non-eligible designated beneficiaries who inherited an IRA from an owner who died after December 31, 2019. Under this rule, the entire inherited IRA balance must be distributed by December 31 of the 10th calendar year following the year of the original owner's death.

For example, if the original owner died in 2023, the beneficiary must empty the account by December 31, 2033. The year of death does not count as year 1.

Within the 10-year period, the beneficiary has flexibility about when to take withdrawals, but the IRS final regulations added an important qualification. If the original owner had already reached their required beginning date, the beneficiary must also take annual distributions during years 1 through 9, calculated using the beneficiary's single life expectancy. The full remaining balance must be distributed by the end of year 10.

If the original owner died before their required beginning date, annual distributions during years 1 through 9 are generally not required. The beneficiary could wait until year 10 to take the entire balance, though earlier withdrawals may make sense for tax planning purposes.

The Life Expectancy Rule

The life expectancy rule applies to eligible designated beneficiaries. Instead of a fixed 10-year window, these beneficiaries may take distributions over their own single life expectancy, as determined by IRS life expectancy tables.

Eligible designated beneficiaries include:

• Surviving spouses may use their own life expectancy, roll the inherited IRA into their own IRA, or elect to be treated as the deceased spouse for RMD purposes under SECURE Act 2.0.
• Minor children of the account owner may use life expectancy distributions until they reach age 21, the age the final regulations set for this purpose, at which point the 10-year rule begins for the remaining balance.
• Disabled or chronically ill individuals may use life expectancy distributions without an age limit.
• Individuals not more than 10 years younger than the deceased may use life expectancy distributions.

A key change from the pre-SECURE Act era is that when an eligible designated beneficiary who is using life expectancy payments dies, the successor beneficiary must empty the remaining account within 10 years. The stretch no longer continues to a second generation.

The table below compares the two distribution frameworks side by side.

Two Paths for a $500,000 Inherited IRA

4. How to Calculate Inherited IRA RMDs

Calculating required minimum distributions from an inherited IRA depends on whether you are subject to the 10-year rule with annual distributions or the life expectancy method. The calculation method differs for each category, and getting it wrong can trigger excise taxes.

For Non-Eligible Beneficiaries Subject to Annual RMDs

If the original owner died on or after their required beginning date, and you are a non-eligible designated beneficiary, you must take annual distributions during years 1 through 9 of the 10-year period. The calculation uses the Single Life Expectancy table from IRS Publication 590-B.

The formula is straightforward. Divide the inherited IRA balance as of December 31 of the prior year by your life expectancy factor from the Single Life Expectancy table. The life expectancy factor is determined by your age in the year following the original owner's death, and you reduce that factor by one for each subsequent year.

For example, if you were 55 in the year after the original owner's death, your initial life expectancy factor would be roughly 31.6, using the current IRS Single Life Expectancy table. In year 1, you would divide the account balance by 31.6. In year 2, you would divide by 30.6, and so on. In year 10, you must distribute the entire remaining balance regardless of the calculated amount.

For Eligible Designated Beneficiaries Using Life Expectancy

Eligible designated beneficiaries use the Single Life Expectancy table based on their age in the year following the original owner's death. The factor is reduced by one each subsequent year, the same as the non-eligible method, but there is no 10-year deadline to empty the account. Distributions continue over the beneficiary's lifetime.

Surviving spouses have additional options. A spouse may recalculate their life expectancy each year using their current age, rather than using the fixed factor reduced by one. This generally results in smaller annual distributions over a longer period.

The Excise Tax for Missed Distributions

If you fail to take a required distribution, the shortfall is subject to a 25 percent excise tax. This tax can be reduced to 10 percent if you correct the shortfall in a timely manner by taking the missed distribution and filing Form 5329. The IRS provided transition relief through 2024, but starting in 2025, the excise tax applies to missed annual RMDs for beneficiaries subject to the 10-year rule with annual distribution requirements (IRS Publication 590-B, 2025).

For a deeper look at how RMDs fit into your overall retirement income strategy, see our guide to retirement income planning, which covers coordinating Social Security, pensions, and portfolio withdrawals. You can also review our RMD glossary entry for a quick reference on required minimum distribution basics.

The table below illustrates a hypothetical year-by-year example for a 55-year-old beneficiary who inherited a $500,000 traditional IRA.

This example is hypothetical, assumes no additional contributions, and is not based on any actual client. Actual account balances and required distributions depend on market performance and individual circumstances.

Sample Annual RMDs on a $500,000 Inherited IRA (Beneficiary Age 55)

5. Step-Up in Basis for Inherited Non-Retirement Assets

When you inherit non-retirement assets such as a brokerage account, real estate, or a home, the tax treatment is fundamentally different from inheriting an IRA. Instead of being subject to RMD rules, inherited non-retirement assets generally receive a step-up in basis to their fair market value on the date of the original owner's death.

Under IRC Section 1014, the basis of inherited property becomes its fair market value on the date of death. This means all the appreciation that occurred during the original owner's lifetime is generally not subject to capital gains tax when you eventually sell the asset (IRS Publication 551).

Not Everything You Inherit Is Taxed the Same

For example, if your parent bought a home for $200,000 and it was worth $800,000 at their death, your basis in the home becomes $800,000. If you sell it for $820,000, you would only owe capital gains tax on the $20,000 of post-death appreciation, not on the $620,000 of growth during your parent's ownership.

California Community Property: The Full Step-Up

California is a community property state, which means both halves of community property generally receive a full step-up in basis when the first spouse dies. This is a significant advantage compared to common law states.

Under IRC Section 1014(b)(6), when one spouse dies, the entire community property asset, including the surviving spouse's half, generally receives a new basis equal to its full fair market value at the date of death. This is not limited to just the deceased spouse's portion (IRS Publication 551, IRS Publication 555).

For example, if a California couple bought a rental property for $300,000 and it was worth $1,000,000 at the first spouse's death, the entire property's basis steps up to $1,000,000, not just the $500,000 representing the deceased spouse's half. If the surviving spouse later sells the property for $1,050,000, the taxable gain is approximately $50,000 instead of $750,000.

This full step-up does not apply automatically. The asset must qualify as community property under California law, which generally means it was acquired during the marriage with community funds while domiciled in California. Separate property, joint tenancy property, and assets acquired by gift or inheritance may receive different treatment. It is important to confirm the characterization of each asset with a qualified tax professional as part of your plan (California Family Code Section 760).

For more detail on how step-up in basis works, visit our step-up in basis glossary page.

6. Tax Planning Strategies for Inherited Assets

Inheriting assets creates tax planning opportunities that are time-sensitive. The decisions you make in the first year after inheriting can affect your tax liability for a decade or more. Here are strategies that may help manage the tax impact.

Spread Distributions Across the 10-Year Window

If you are subject to the 10-year rule and not required to take annual distributions, you may benefit from spreading withdrawals across multiple years rather than taking everything in year 10. A large lump-sum distribution could push you into a higher tax bracket and increase your Medicare Part B and D premiums through IRMAA surcharges.

By spreading distributions, you may keep your taxable income in a lower bracket each year. This requires projecting your income over the full 10-year period and coordinating with your other income sources. The reason the timing matters is not the math for its own sake. A distribution plan that respects your brackets is what lets this money actually change something, a retirement date, a mortgage, a grandchild's education, instead of leaking away in avoidable tax.

Coordinate With Your Own Roth Conversion Window

A common misconception is worth clearing up here. A non-spouse beneficiary generally cannot convert an inherited traditional IRA to a Roth. What you can do is coordinate. Inherited IRA withdrawals raise your income, which may crowd out conversions of your own accounts, so inheritors who were planning conversions often need to re-sequence the two, taking larger inherited distributions in some years and converting their own dollars in others. Our guide to Roth conversion strategy for pre-retirees walks through how that window works.

Coordinate Inherited IRA Distributions With Other Income

If you are still working, inherited IRA distributions add to your taxable income and could affect your tax bracket, your ability to contribute to a Roth IRA, and your Medicare premiums. If you are retired, coordinating inherited distributions with your own Social Security, pension, and required minimum distributions can help manage your overall tax picture.

Take Advantage of the Step-Up in Basis

For inherited non-retirement assets, the step-up in basis eliminates the tax on appreciation during the original owner's lifetime. Before selling any inherited asset, confirm your basis has been properly adjusted. Obtain date-of-death valuations for securities and a qualified appraisal for real estate.

In California, confirm whether assets qualify as community property to capture the full step-up. Keep documentation of the date-of-death value, the basis adjustment, and the asset characterization in case the IRS questions your basis reporting.

Use Charitable Giving to Offset Distribution Income

If you take large distributions from an inherited IRA and are charitably inclined, you may offset the taxable income with charitable contributions. If you are age 70 and a half or older, you can make a qualified charitable distribution (QCD) of up to $111,000 per year in 2026, directly from an IRA, including an inherited IRA, to a qualified charity, excluding that amount from your taxable income (IRS Publication 590-B, 2025, and IRS Notice 2025-67). Charitable giving from other sources may also help offset taxable income from inherited distributions.

The table below illustrates the estimated tax impact of taking a $500,000 inherited IRA distribution as a lump sum in year 10 versus spreading it across 10 years.

Even Withdrawals vs. Year-10 Lump Sum

7. Your First 90 Days: A Practical Checklist

The first 90 days after inheriting are critical. Decisions made during this window can affect your tax situation for years. Here is a practical checklist to guide you through the immediate steps.

Your First 90 Days After Inheriting

Days 1 to 30: Secure and Document

• Obtain multiple certified copies of the death certificate. You will need these for every financial institution, insurance company, and government agency you contact.
• Contact the IRA custodian. Notify the financial institution holding the IRA of the account owner's death. Request information about the beneficiary designation on file and ask what documentation they need to establish an inherited IRA in your name.
• Do not take any distributions yet. Rushing to withdraw money can create unnecessary tax liability. Take time to understand the rules before moving any funds.
• Locate the beneficiary designation form. Confirm who is named as beneficiary and whether there are contingent beneficiaries. The beneficiary form, not the will, controls who receives the IRA.
• Check the year-of-death RMD. If the original owner died before taking that year's required minimum distribution, the beneficiary generally must take it, and the final regulations provide an automatic deadline extension in some cases. Confirm the status with the custodian early.
• Gather date-of-death valuations. For non-retirement assets, obtain fair market value documentation as of the date of death. For securities, request a valuation letter from the brokerage. For real estate, engage a qualified appraiser.
• Consult with a fee-only fiduciary financial advisor and tax professional. The rules are complex and the stakes are high. A fee-only fiduciary is paid only by clients, never by commissions, and carries no broker-dealer affiliation. Use our fee calculator to see what transparent, fee-only planning costs look like for your situation.

Days 31 to 60: Establish and Evaluate

• Open an inherited IRA. If you are a named beneficiary, open an inherited IRA account to receive the assets. Do not commingle inherited IRA assets with your own retirement accounts.
• Determine your beneficiary category. Identify whether you are an eligible designated beneficiary, a non-eligible designated beneficiary, or a non-designated beneficiary. This determines your distribution timeline.
• Determine whether the original owner had reached their required beginning date. This affects whether you must take annual distributions during the 10-year period. Your advisor or tax professional can help you confirm this.
• Review the asset allocation. Inherited IRA investments may need rebalancing to align with your financial plan. The original owner's investment strategy may not be appropriate for your situation.
• Identify all inherited assets and their tax treatment. Create an inventory of everything you inherited, including IRAs, brokerage accounts, real estate, life insurance, and annuities. Each asset type has different tax rules.

Days 61 to 90: Plan and Implement

• Develop a distribution strategy. Work with your advisor to project your income over the next 10 years and determine the optimal distribution schedule. Consider your current tax bracket, future income expectations, and Medicare premium implications.
• Coordinate with your own Roth conversion plans. Inherited IRA withdrawals raise your income, so if you were planning conversions of your own accounts, sequence the two together rather than deciding each in isolation.
• Document the step-up in basis for non-retirement assets. Ensure that brokerage accounts reflect the date-of-death basis. For California community property, confirm the full step-up applies and document the asset characterization.
• Update your own estate plan, and think of it as the same kindness someone just did, or did not do, for you. The kindest thing any of us can do for the people who will grieve us is to make the transfer as painless as possible, because they will not be at their cognitive best when the time comes. Handling everything that can be handled while we are alive is a way of loving our people after we are gone, it lets them recalibrate to a world without us instead of untangling paperwork through the fog. This is work we quarterback for clients as part of the ongoing relationship rather than leaving you to coordinate it alone.
• Set up a tracking system. Whether you are subject to annual RMDs or the 10-year rule, you need a system to track distributions and deadlines. Missing a required distribution can trigger a 25 percent excise tax.
• Schedule a planning conversation. If you have not already engaged a financial advisor, get started with a planning conversation tailored to your inherited assets and your goals for the next chapter.

Inheriting is rarely just a financial event, it is usually part of losing someone close to you, and if you would rather not carry the rules alone while you are grieving, that is a reasonable conclusion, not a failure. Mapping an inherited IRA against your actual tax picture is exactly the kind of work a fiduciary advisor does. You can start that conversation any time on our get started page. No pitch, just clarity. One last thought. The rules in this guide are how the money moves. Why it moves is the part worth sitting with. Someone spent a working lifetime arranging this so it would reach you, and a thoughtful plan, both for what you received and for what you will one day leave, is how that intention keeps going.

Related Reading

• Roth conversion strategy for pre-retirees
• Retirement income planning: coordinating Social Security, pensions, and portfolio withdrawals
• Estate planning when you'll never owe estate tax: what California families actually need in 2026

Sources

• IRS Publication 590-B, Distributions from Individual Retirement Arrangements (2025)
• IRS Publication 551, Basis of Assets
• IRS Publication 555, Community Property
• IRS Notice 2024-35, transition relief for certain required minimum distributions
• IRS Notice 2025-67, 2026 inflation adjustments, including the qualified charitable distribution limit
• Internal Revenue Code Section 1014, basis of property acquired from a decedent
• Internal Revenue Code Section 1014(b)(6), community property basis rules
• California Family Code Section 760, community property definition
• SECURE Act of 2019 and SECURE 2.0 Act of 2022, required minimum distribution provisions
• Ward L, Mathias JL, Hitchings SE, "Relationships between Bereavement and Cognitive Functioning in Older Adults," Gerontology, 2007
• Saavedra Perez HC, Ikram MA, Direk N, Tiemeier H, "Prolonged Grief and Cognitive Decline: A Prospective Population-Based Study in Middle-Aged and Older Persons," American Journal of Geriatric Psychiatry, 26(4), 451 to 460, 2018

Disclosures. Up Capital Management is a Registered Investment Adviser. Registration does not imply a certain level of skill or training. This article is educational in nature and reflects rules and figures believed accurate as of the publication date, which are subject to legislative and regulatory change. Nothing here constitutes individualized tax, legal, or investment advice. Inherited IRA and estate distribution rules depend heavily on individual circumstances, including your relationship to the original owner, the date of their death, your state of residence, and your overall financial and tax situation, and any decision should be reviewed with a qualified tax or legal professional before implementation. No specific tax outcome or savings amount is guaranteed. Examples presented, including the RMD and distribution comparison tables and all charts, are hypothetical only, are not based on any actual client, and do not reflect the experience of any Up Capital Management client. Past performance does not guarantee future results.

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