For four straight years the Internal Revenue Service told beneficiaries of inherited retirement accounts not to worry about a distribution they were probably required to take. It issued notices in 2022, 2023 and 2024 waiving the penalty for missed required minimum distributions on inherited IRAs, because the rules written after the 2019 retirement law were unsettled. Those waivers ended. Final regulations published in July 2024 apply to distribution years beginning in 2025, so last year was the first live year and this is the second.
What the regulations settled is the point most people got wrong. The ten year rule that replaced the old lifetime stretch does not simply mean the account must be empty by the end of year ten. If the original owner died on or after the date their own required distributions had begun, the beneficiary must also take an annual distribution in each of years one through nine. Two obligations, running at the same time, on the same account.
The Split That Decides Everything
Whether the annual distributions apply turns on a single fact about the person who died, not about the person who inherited. If the owner died on or after their required beginning date, annual distributions apply during the ten years. If the owner died before it, there are none, and the account can be emptied in whatever pattern suits the beneficiary by the deadline. An inherited Roth IRA never carries annual distributions, because a Roth owner has no lifetime distribution requirement.
One piece of good news sits inside the waiver history. The service waived the penalty rather than the requirement, so distributions skipped in those years do not have to be made up. What never paused is the ten year clock itself, which has been running from the year after death the entire time.
The Mechanics of a Clock That Does Not Pause
This is where the arithmetic turns against people who wait. Deferral inside a ten year window is not avoidance, it is compression. The balance that is not distributed keeps compounding, and everything left on the last day of year ten comes out at once, in a single tax year. An account that grows over a decade can produce a final year distribution larger than the balance originally inherited.
The typical beneficiary is not a young heir in a low bracket either. It is an adult child somewhere between fifty and sixty-five, at or near peak earnings. The old stretch let a fifty-year-old spread an inherited account across more than thirty years. The new rule gives ten, and for most beneficiaries it also removes the choice of when within those ten. The penalty for missing a required distribution is 25 percent of what should have come out, reduced to 10 percent if corrected within roughly two years.
Who Is Exempt, and For How Long
A narrow group keeps something closer to the old treatment. A surviving spouse has the widest set of options, including rolling the account into their own. Beyond that, the exemptions cover the owner's own minor child, a disabled individual, a chronically ill individual, and anyone not more than ten years younger than the owner, which usually means a sibling or a longtime partner. Two details trip families up. A grandchild is not a minor child for this purpose, and minority ends at the twenty-first birthday under a flat federal rule rather than whatever age the state uses.
Exempt status is temporary rather than permanent. When a minor child turns twenty-one, the ten year rule starts with annual distributions inside it, and when an exempt beneficiary dies the person who inherits next gets the same treatment. The stretch was not preserved so much as deferred by one generation or one birthday.
The Bill That Arrives Two Years Later
There is a second cost that never shows up on the tax return. Medicare premiums are set by income from two years earlier, so a distribution taken in 2024 determines the Part B and Part D premiums being paid this year. The surcharges are cliffs rather than ramps: one dollar over a threshold moves a beneficiary into the next bracket for the whole year. Above 109,000 dollars of income for a single filer or 218,000 for a couple, the first tier adds about 95 dollars a month across Part B and Part D. And inheriting a retirement account is not on the list of life changing events that allows an appeal, which covers marriage, divorce, the death of a spouse and work stoppage.
The waiver years trained a generation of beneficiaries to treat inherited account distributions as something that might be postponed, and the only thing the waivers ever postponed was the penalty. Two things are worth doing early: establishing whether the person who died had already started their own required distributions, since that determines whether annual withdrawals are mandatory, and mapping the ten years against known income rather than defaulting to the back end.
— John Stone