How Is an Inherited IRA Taxed? The Complete Guide

Does the IRS Tax You Just for Inheriting an IRA?

Inheriting an IRA does not create an inheritance tax bill on its own for most people. Two separate taxes could apply instead, one federal, one state. Both work differently than the income tax you'll eventually owe on withdrawals.

The federal estate tax applies to the estate itself, not to you as the beneficiary. For 2026, the IRS sets the exemption at $15 million per person, or $30 million for a married couple. A traditional or Roth IRA counts toward that total, but very few estates come close to that size.

Five states charge a separate inheritance tax, paid by the person who receives the money: Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. The rate depends on your relationship to the original owner. A spouse or child usually pays little or nothing, while a more distant relative or friend can owe a real percentage of the account.

Neither tax is usually the biggest cost. Income tax on the withdrawals themselves is what actually shapes the bill for most beneficiaries, and it applies no matter which state you live in.

The SECURE Act's 10-Year Rule for Non-Spouse Beneficiaries

The SECURE Act changed inherited IRA rules for anyone whose IRA owner passed away in 2020 or later. Most non-spouse beneficiaries can no longer stretch withdrawals over their own lifetime. Instead, they must empty the account by December 31 of the 10th year after the owner's death.

This is called the 10-year rule, and it applies to any 'designated beneficiary' who is not a spouse and doesn't qualify as an eligible designated beneficiary, a category covered below. It applies to both traditional and Roth IRAs, though the tax owed on each type is very different. These rules closely mirror the ones covering an inherited 401(k), detailed in our 401(k) beneficiary rules guide, though plan administrators handle some steps differently than IRA custodians do.

You don't have to wait until year 10 to touch the money. You can withdraw a little each year, take it all at once, or withdraw in whatever pattern fits your taxes, as long as the account reaches zero by the deadline. Missing that deadline triggers a real penalty.

The IRS can charge an excise tax of 25% on any amount that should have been withdrawn but wasn't. That penalty drops to 10% if you fix the shortfall within the correction window, generally by the end of the second year after the missed withdrawal.

Do You Have to Take Money Out Every Year Within the 10 Years?

For years, this was the most confusing part of inherited IRA taxes. The IRS finalized the answer in 2024, and IRS Publication 590-B now spells out the current rule. It depends on one date: whether the original owner had already started their own required withdrawals.

If the owner passed away before their required beginning date, generally age 73, no annual withdrawal is required within the 10-year window. You can wait until year 10 and take the entire balance at once if that works better for your taxes. This is also the rule for every inherited Roth IRA, since the original owner was never required to take withdrawals during their own lifetime.

If the owner passed away on or after that required beginning date, the beneficiary must take an annual required minimum distribution (RMD) in years one through nine, based on the beneficiary's own life expectancy. The full remaining balance is then due by the end of year 10.

Check with the plan custodian or a tax professional about which scenario applies before settling on a withdrawal schedule. Getting this wrong risks the excise tax described above, and custodians don't always calculate it correctly on their own.

Eligible Designated Beneficiaries Get More Time

A small group of beneficiaries skips the 10-year rule entirely. The IRS calls this group eligible designated beneficiaries, and they can stretch withdrawals over their own life expectancy instead.

Four categories qualify. A surviving spouse is one, covered in more detail in the next section. A minor child of the original owner is another, though the 10-year clock starts once that child reaches the age of majority.

A person who is chronically ill or disabled also qualifies, under the IRS's specific definitions for those terms. So does anyone not more than 10 years younger than the original owner, a category that can cover a sibling or an unmarried partner close in age.

Stretching withdrawals over decades instead of 10 years can cut the yearly tax bill sharply, since each withdrawal is smaller and spread across more years. If you think you might qualify as an eligible designated beneficiary, confirm it with the plan custodian early. The classification affects your entire withdrawal schedule from the start.

Spousal Beneficiaries Have the Most Flexible Rules

A surviving spouse has more options than any other beneficiary. The IRS allows a spouse to roll an inherited IRA into their own IRA, treating it as if it had always been theirs.

Rolling it over means using your own required beginning date and your own IRS life expectancy table, not the original owner's. This usually delays withdrawals the longest, especially if the surviving spouse is younger than the original owner was. A younger spouse should also confirm the 10% early-withdrawal penalty rules before rolling over, since money moved into your own IRA becomes subject to your own age-59½ rules.

A spouse can also choose to remain a beneficiary instead of rolling the account over. This keeps the option to withdraw before age 59½ without the 10% penalty, which can matter if the spouse needs the money sooner.

Either path avoids the 10-year rule that applies to most other beneficiaries. Talk with a tax professional before choosing, since the right answer depends on your age relative to the original owner's and how soon you expect to need the money.

Traditional vs. Roth: How Withdrawals Are Actually Taxed

The account type decides what you owe when money actually comes out. A traditional inherited IRA is taxed the same way it would have been for the original owner: as ordinary income, at your own tax rate, in the year you withdraw it.

That means a large withdrawal in a high-income year can push you into a higher bracket. Every dollar withdrawn from a traditional inherited IRA stacks on top of your salary and other income for the year, the same as a paycheck would.

A Roth inherited IRA works differently. Contributions come out tax-free no matter what. Earnings come out tax-free too, as long as the original Roth account was open for at least five years before the first withdrawal.

Most Roth IRAs clear that five-year mark easily, since the clock starts on the original owner's first Roth contribution, not on the date you inherited it. In practice, most Roth inherited IRA withdrawals owe no federal income tax at all, which makes the 10-year deadline far less costly for a Roth than for a traditional account. See our Roth IRA vs. Roth 401(k) comparison for how the two account types differ if you're weighing which one to fund yourself.

A Worked Example: Taxes on a $200,000 Inherited IRA

This worked example uses a hypothetical case with round numbers, not a real client. A single adult child inherits a $200,000 traditional IRA. The original owner passed away before their required beginning date, so no annual withdrawal is required, only the year-10 deadline.

Assume the beneficiary earns $70,000 a year in wages and takes the 2026 standard deduction of $16,100, for taxable wage income of $53,900. That already places her inside the 22% bracket, which for 2026 runs from $49,840 to $106,250 for a single filer.

Option one: withdraw $20,000 a year for all 10 years. Each year's taxable income becomes $73,900, still inside the 22% bracket. The tax on each $20,000 withdrawal is $4,400, for a total of $44,000 in federal tax across the 10 years.

Option two: wait and withdraw the full $200,000 in year 10. That pushes taxable income to $253,900 for that one year, spanning three brackets: 22%, 24%, and 32%. The tax on that $200,000 comes to roughly $51,037, about $7,037 more than spreading it out.

This example ignores investment growth and state tax, and every real situation differs by income and filing status. The lesson holds regardless: stacking a large withdrawal on top of your other income in one year usually costs more than spreading it across years where your bracket has room.

Using Roth Conversions to Cut the Tax Bill

The best time for a Roth conversion is often before the original owner passes away, not after. Someone who converts part of a traditional IRA to a Roth IRA during their lifetime pays the tax themselves, often while managing their own bracket carefully across several years.

That upfront tax payment leaves heirs with a Roth account instead of a traditional one. Since Roth withdrawals are generally tax-free, the 10-year deadline becomes far less painful for whoever inherits the account. See our Roth conversion rules guide for the pro-rata trap and other details worth checking before converting.

Non-spouse beneficiaries cannot do this conversion themselves. The IRS does not allow a non-spouse beneficiary to convert an inherited traditional IRA into a Roth IRA. You're required to take distributions under the rules above and pay ordinary income tax as you go.

A surviving spouse has one more option here. After rolling the inherited IRA into their own IRA, a spouse can then convert some or all of it to a Roth IRA, exactly as the original owner could have done. This works best when the spouse expects to be in a lower bracket now than in future years, since the conversion itself is a taxable event.

Estate Planning Tips for IRA Owners and Beneficiaries

A few planning moves make the eventual tax bill smaller for whoever inherits your IRA. Naming a spouse as the primary beneficiary preserves the most flexible rules, so keep beneficiary forms updated after a marriage, divorce, or death in the family.

Consider naming eligible designated beneficiaries directly where it fits your family, since a disabled or chronically ill heir, or one close to your own age, gets the longer stretch option automatically. A large single IRA left to several children can also be split into separate inherited IRAs, letting each beneficiary manage their own 10-year clock and tax bracket independently.

For beneficiaries already holding an inherited IRA, coordinate withdrawals with the rest of your income instead of treating the account as a separate decision. Our what to do with an inheritance guide covers the broader order of operations for a windfall, including debt, savings, and other inherited assets. Anyone still funding their own IRA should also check our IRA contribution limits guide for this year's caps.

If the estate is large enough to approach the federal exemption, or the beneficiary lives in one of the five inheritance tax states, get an estate attorney or CPA involved before taking any distribution. A short conversation before the first withdrawal can prevent an expensive mistake later.

Bottom Line

An inherited IRA rarely triggers a separate inheritance or estate tax bill for the person who receives it. The tax that actually matters is income tax on the withdrawals themselves, and how much you owe depends on the account type, your beneficiary category, and when you choose to withdraw.

Most non-spouse beneficiaries have 10 years to empty the account, with an annual RMD required only if the original owner had already started their own required withdrawals. A spouse, a minor child, a disabled or chronically ill beneficiary, and anyone close in age to the original owner all get more flexible rules.

Spreading withdrawals across the full 10 years, instead of waiting for one large payout, usually keeps more of the money in lower tax brackets. Run your own numbers through ModernWallet's retirement calculator before deciding on a withdrawal schedule, and confirm your beneficiary category with the plan custodian first.

Frequently asked questions