Required Minimum Distributions are mandatory minimum amounts that you must withdraw annually from tax-deferred retirement accounts once you reach a certain age or inherit an account. For inherited IRAs, the calculation is determined by dividing the prior year’s December 31 balance by a specific life expectancy factor from IRS Table I, depending on your relationship to the original owner.
How inherited account guidelines govern your distributions
The Internal Revenue Service enforces Required Minimum Distributions (RMDs) to ensure that tax-deferred retirement savings are eventually distributed and taxed rather than growing tax-free indefinitely. When you inherit a traditional IRA, you inherit the associated income tax liability. You must pay ordinary income tax on every dollar you withdraw. Roth IRAs are also subject to inherited withdrawal rules, but the actual distributions remain tax-free if the account was open for at least five years.
The rules for inherited IRAs changed dramatically with the passage of the SECURE Act. For accounts inherited after 2019, most non-spouse beneficiaries can no longer “stretch” distributions over their entire lifetimes. Instead, you are generally bound by a strict 10-year rule requiring the account to be completely emptied by the end of the tenth year following the original owner’s death. Furthermore, if the original owner had already reached their mandatory RMD age (currently age seventy-three), you must also take annual RMDs during years one through nine of that ten-year window based on your own life expectancy.
Step-by-step guide to calculate your inherited distribution
Calculating your specific annual obligation requires identifying your beneficiary status and tracking down specific financial data points.
- Determine your beneficiary classification. Review your relationship to the deceased. You are an Eligible Designated Beneficiary if you are a surviving spouse, a minor child of the owner, disabled, chronically ill, or less than ten years younger than the owner. If you do not fit these categories, you are a standard designated beneficiary subject to the 10-year rule.
- Find the prior year-end account balance. Locate the official fair market value of the inherited IRA as of the close of business on December 31 of the previous year. For example, to calculate your requirement, you must use the precise account balance from December 31 of the prior calendar year.
- Locate your IRS life expectancy factor. Open IRS Publication 590-B and reference Single Life Expectancy Table I. Look up the age you will turn by December 31 of the current distribution year to find your corresponding life expectancy divisor.
- Divide the balance by the factor. Divide your step two year-end balance by your step three life expectancy factor. The resulting number is your exact mandatory minimum distribution amount for the current year.
- Subtract one for subsequent years. For each following year, do not look up your age on the chart again. Instead, take your original life expectancy factor from year one and subtract the number one from it to get your new divisor.
- Withdraw the funds before the annual deadline. Submit your distribution request through your account custodian. Ensure the cash leaves the account completely by December 31 of the current calendar year to satisfy the IRS requirement.
The multi-year failure trap that triggers steep penalties
The most critical mistake you can make with an inherited IRA is failing to take your annual distributions during the ten-year holding window when the original owner died post-RMD age. Because the IRS issued confusing interim guidance regarding annual withdrawals under the 10-year rule, many beneficiaries incorrectly believe they can wait until year ten to pull all the money out at once.
If you miss an annual RMD, the IRS imposes a severe 25% excise tax penalty on the exact amount you were supposed to withdraw but failed to withdraw. While this penalty can be reduced to 10% if you correct the error and submit a correction form within two years, the financial damage compounds quickly if you miss multiple years in a row. Leaving a large inherited balance untouched for a decade not only invites IRS penalties, but it also forces a massive, sudden distribution in year ten that can instantly push your personal income into the highest federal tax bracket.