Inherited IRA Rules in 2026: What the SECURE Act Changed and What It Costs You

If your IRA passes to an adult child, they have ten years to empty it, and if you had already begun required minimum distributions, they must take one every year along the way. That second half is what most families and many advisors still misread, and it turns an ordinary inheritance into a bracket problem worth tens of thousands in avoidable tax.

The 10-Year Rule Is Not What It Sounds Like

The headline change from the SECURE Act of 2019 was the elimination of the "stretch IRA" for most non-spouse beneficiaries. Under the old rules, an adult child could spread distributions across their own lifetime. Now, a non-eligible designated beneficiary (think: adult children, most grandchildren, non-spouse partners) must fully empty the account within ten years of the owner's death.

That sounds manageable. The trap is what the IRS clarified in 2022 and fully enforced starting in 2025: if you had already begun taking required minimum distributions, your heirs cannot simply wait and take a lump sum in year ten. They must take annual RMDs in years one through nine, then clear the remainder by December 31 of year ten. Ignore those annual distributions and the penalty is 25% of the amount that should have been withdrawn.

What This Looks Like in Real Dollars

Two illustrative scenarios.

The $500,000 inherited IRA. Your daughter inherits this at 45. Her salary already puts her in the 22% bracket. The IRS-calculated RMD in year one might be around $26,000, which stays within that bracket. But in year ten, if she has taken only the minimum, the remaining balance could be $350,000 or more, forced out in a single year. That spike can push her well into the 32% or 35% bracket.

The $2 million inherited IRA. Annual RMDs in the early years may run $100,000 to $130,000 on top of her existing income, and she may never escape the 32% bracket during the entire ten-year window. Poor sequencing on that balance can easily generate $200,000 or more in excess taxes compared to a bracket-aware plan.

The Harvest stage of a well-built plan, described in the Sporos Doctrine, exists for exactly this: getting money out at the lowest marginal rate, year by year.

The Takeaway

The fact that changes the answer is whose bracket the money lands in. A daughter in her peak earning years and a son finishing graduate school inherit identical accounts and face completely different ten-year schedules, which is why one form splitting everything evenly is often the wrong instrument.

The families who get hurt are usually the ones who followed the rules. The heirs took the required minimum every year, filed correctly, never owed a penalty, then absorbed the entire remaining balance in year ten at the peak of their careers. Every step was compliant and the sequencing was never planned.

This is not estate planning for the ultra-wealthy. A $600,000 IRA passed to a working professional can create a bracket problem that advance work eliminates, and how you name beneficiaries is worth a conversation while the account is still yours.

The information provided is for educational purposes only and does not constitute investment, legal, or tax advice. Consult with qualified professionals for guidance specific to your situation.