Inherited IRA Calculator

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in December 2019, fundamentally changed the rules for inherited retirement accounts. Under the previous law, non-spouse beneficiaries could “stretch” distributions from an inherited IRA over their own life expectancy, often spanning decades. The SECURE Act replaced this with a 10-year distribution requirement for most non-spouse beneficiaries.

This means that if you inherit an IRA from someone who passed away after December 31, 2019, you must withdraw the entire account balance by the end of the 10th year following the year of the original owner's death. The specific requirements during that 10-year window depend on whether the original owner died before or after their Required Beginning Date (RBD), which is generally April 1 of the year after the owner turns 73.

If the original owner died before their RBD, there are no annual required minimum distributions during years 1 through 9. You have full flexibility in how you time withdrawals, as long as the entire account is emptied by the end of year 10.

If the original owner died after their RBD, annual RMDs are required in years 1 through 9, calculated using the deceased owner's remaining single life expectancy (reduced by one each year). Any balance remaining after those annual distributions must still be fully distributed by the end of year 10.

Certain “eligible designated beneficiaries” are exempt from the 10-year rule, including surviving spouses, minor children of the account owner (until they reach the age of majority), disabled or chronically ill individuals, and beneficiaries who are not more than 10 years younger than the deceased.

How Are Inherited IRA Distributions Taxed?

The tax treatment of inherited IRA distributions depends on the type of account you inherited. Distributions from an inherited traditional IRA are taxed as ordinary income in the year they are received. This means each withdrawal increases your taxable income and is taxed at your marginal federal and state income tax rates. Large distributions in a single year could push you into a higher tax bracket, resulting in a significantly larger tax bill.

Strategic planning around the timing and size of distributions can help minimize the total tax burden. For example, spreading distributions evenly across all 10 years rather than waiting until year 10 to take a lump sum can help keep you in a lower tax bracket each year. Coordinating withdrawals with years of lower income, such as between jobs or in retirement, can also reduce total taxes paid.

What Is the Difference Between Traditional and Roth Inherited IRAs?

While both traditional and Roth inherited IRAs are subject to the SECURE Act 10-year distribution rule, the tax consequences differ dramatically. Distributions from an inherited traditional IRA are taxed as ordinary income because the original contributions were made with pre-tax dollars. In contrast, distributions from an inherited Roth IRAare generally tax-free, provided the original Roth IRA was held for at least five years before the owner's death.

For inherited Roth IRAs, the 10-year rule still applies, but since distributions are not taxable, beneficiaries often benefit from leaving the funds invested for as long as possible to maximize tax-free growth, then withdrawing the entire balance in year 10. For inherited traditional IRAs, the opposite strategy may be beneficial: spreading distributions evenly to avoid higher marginal tax rates.

Regardless of account type, working with a qualified estate planning attorney and tax advisor can help you develop a distribution strategy tailored to your complete financial picture.