New 10-Year Rule for Inherited IRAs Now in Effect (2025)

If you’re planning to leave a retirement account to your children—or you’ve recently inherited an IRA or 401(k)—a critical tax rule is now in effect that could impact your financial strategy. As of January 1, 2025, the final IRS rule for non-spouse beneficiaries of qualified retirement plans is in force.

This update clarifies the long-standing confusion around the 10-year rule established by the SECURE Act of 2019. Understanding how this affects you or your heirs can help avoid penalties and minimize tax burdens.

Background: The SECURE Act Changed the Rules

The SECURE Act (Setting Every Community Up for Retirement Enhancement Act), passed in 2019, dramatically changed the way inherited retirement accounts are handled.

Before the law took effect, non-spouse beneficiaries of a qualified retirement account—such as an IRA, 401(k), 403(b), or 457 plan—could stretch required minimum distributions (RMDs) over their own life expectancy. This allowed the account to grow tax-deferred while spreading the income tax burden over decades.

But the SECURE Act ended that “stretch” strategy. Instead, most non-spouse beneficiaries were required to deplete the account within 10 years of the original owner’s death.

Initial Confusion Over the 10-Year Rule

The law created uncertainty from the beginning. People weren’t sure whether they needed to take annual RMDs for each of the 10 years or if they could wait and withdraw everything in the tenth year.

In response, the IRS waived penalties for missed RMDs between 2020 and 2024 while the agency finalized how the rule should be applied. That grace period has now ended.

2025 IRS RMD Rule: Key Changes for Non-Spouse IRA Beneficiaries

As of January 1, 2025, the IRS has clarified the distribution requirements for non-spouse beneficiaries of qualified retirement accounts. The new rule is now in effect, and here’s how it works:

You are subject to annual RMDs if:

• You inherited the account in 2020 or later;
• The original account holder had already reached RMD age before death;
• You are not a surviving spouse, a child under age 21, or someone who is chronically ill or disabled.

In this case:

• You must take annual RMDs based on your own life expectancy, using IRS life expectancy tables;
• The entire account must be fully distributed by the end of the tenth year after the original owner’s death;
• If you miss an RMD, you could be subject to a penalty of up to 25% of the amount that should have been withdrawn.

What If You Inherited an IRA Between 2020 and 2024?

If you inherited a qualified retirement plan during this transitional period, and didn’t take RMDs because of the confusion, the IRS is not requiring you to take make-up distributions for those years. However, you are now required to begin taking RMDs going forward—and still deplete the account within ten years of inheritance.

Implications for Your Estate Plan

This rule has big implications, both for people planning to pass down retirement assets and for those who will inherit them.

If you’re planning to leave a traditional IRA or other qualified plan to your children or grandchildren, this could lead to:

• A compressed tax timeline for your heirs;
• Higher income tax bills if distributions push beneficiaries into a higher tax bracket;
• Potential liquidation of assets earlier than expected.

Now is the time to revisit your estate plan and explore strategies that could ease the tax burden for your loved ones.

Talk to Your Financial and Estate Planning Team

The now-effective IRS rule brings clarity—but also complexity. To ensure you’re making informed decisions, work with both a financial advisor and an estate planning attorney.

They can help you:

• Calculate your beneficiaries’ RMDs accurately;
• Plan for potential tax consequences;
• Explore options like Roth conversions, charitable remainder trusts, or spousal rollovers where applicable;
• Ensure your documents and beneficiary designations are aligned with your current goals.

Final Thoughts

With the IRS’s new 10-year rule now active, non-spouse beneficiaries face stricter requirements and harsher penalties for noncompliance. Whether you’re passing down a retirement account or receiving one, proactive planning is key to preserving wealth and avoiding surprises.

Need help navigating these changes?

Contact our expert estate planning team today to ensure your retirement assets are protected under the new 2025 IRS rules. The Estate Planning & Elder Law Center of Brevard has guided families across Florida for over 35 years. Let us help you align your retirement assets with your estate planning goals. Visit elderlawcenterbrevard.com to get started.