Written by Joshua Tiedt, Summer 2026 Financial Planning Intern at CJM Wealth Advisers, in collaboration with Parker Trasborg, CFP®.

When you are grieving the loss of a loved one, sorting through tax rules is likely the last thing on your mind. Inheriting a retirement account brings sudden financial decisions that may significantly affect your life. The approach for handling the account comes down to three details.

1.   Your relationship to the person who passed away
2.   Whether they had already started taking distributions
3.   Your specific beneficiary category

How these details apply to your situation starts with the baseline rule for inherited accounts, the RMD.

What is a Required Minimum Distribution (RMD)?

A Required Minimum Distribution (RMD) is the annual amount the IRS requires you to withdraw from traditional retirement accounts, like 401(k)s and IRAs. These accounts allow savings to grow tax-deferred for decades, but eventually the government requires annual withdrawals, which are taxed as ordinary income.

For the original owner, RMDs start at age 73, scheduled to shift to age 75 in 2033. The IRS calculates the amount by dividing the account balance by a life expectancy factor. As the owner ages, that factor declines, which increases the required withdrawal each year. When you inherit an IRA, the same basic process applies, but your beneficiary category sets your specific timeline and withdrawal amounts.

The Three IRA Beneficiary Categories

The IRS groups heirs into three categories, each with its own rules.

1. Eligible Designated Beneficiaries (EDBs)

This group includes:

•     Surviving spouses
•     Minor children of the original owner
•     Individuals who are disabled or chronically ill
•     Heirs who are not more than ten years younger than the deceased, which also covers anyone older than the deceased

How it works. You can stretch withdrawals over your own life expectancy, keeping the remaining funds growing tax-deferred. For minor children, this timeline changes once they turn 21. At that point they move to the standard 10-year rule, which requires them to empty the inherited account within a decade.

2. Non-Eligible Designated Beneficiaries (Non-EDBs)

This is the most common category for heirs, typically including adult children and siblings of the deceased owner.

How it works. The 10-year rule applies here, meaning you must completely empty the account by December 31st of the tenth year following the original owner’s death. Your annual requirements during those ten years depend on whether the original owner had started taking withdrawals.

•     If the owner had started taking RMDs. You must take annual distributions in years one through nine, then empty the remaining balance in year ten.
•     If the owner had not started taking RMDs. You do not need to take withdrawals during years one through nine, but you must still empty the account by the end of the tenth year.

3. Non-Designated Beneficiaries

This applies when the beneficiary is an entity rather than a person, such as an estate, a charity, or certain types of trusts.

How it works. This group has the tightest restrictions, and the timeline depends on the original owner’s age at death.

•     If the owner passed after starting RMDs. Withdrawals are based on the original owner’s remaining single life expectancy.
•     If the owner passed before starting RMDs. You must completely empty the account by the end of the fifth year.

Why Naming Your Beneficiaries Matters

The categories above show how much your timeline and tax flexibility depend on who is named on the account. When no person is designated, the account can default to your estate, which lands it in the most restrictive category with the shortest payout windows and the least room to manage the tax impact.

Beneficiary designations also fall out of step with life over time. A form completed years ago may no longer reflect a marriage, a divorce, a new child, or a death in the family. Reviewing these designations is part of keeping a financial plan current, and it’s one of the details our team monitors as part of your ongoing plan, so the people you intend to provide for are the ones who actually receive the account.

What Happens if You Miss a Distribution

Because these deadlines carry real consequences, they are worth tracking closely. If you fail to take a required distribution on time, the IRS applies a penalty of 25% of the amount you should have withdrawn. That penalty drops to 10% if you correct the shortfall within a two-year window by taking the distribution and filing the appropriate form.

The rules were softened in recent years, so an honest oversight caught early is far less costly than it once was. Still, the timelines are easy to lose track of, especially across a full decade of required withdrawals, which is exactly why many people prefer to have these dates monitored for them.

Planning for Inherited IRA Taxes

You shouldn’t have to work through complex tax calculations on your own while processing a loss. Proactive steps help protect your inheritance from heavy tax burdens and unnecessary IRS penalties.

Our team can build a clear roadmap for your distributions and coordinate the details directly with your CPA. We handle the paperwork and monitor the timelines so you can take the time you need for yourself and your family, knowing everything rests in safe hands.

Connect with the CJM team today to discuss your account and clarify your options.