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[Individual] Understanding the 2025 Inherited IRA Rule Changes

Kwon Eric


If you’ve inherited (or expect to inherit) an individual retirement account (IRA), changes coming in 2025 may significantly impact your tax planning. At K&S Associates (K&S), we specialize in helping individuals navigate these complex tax regulations to ensure you remain compliant and maximize your savings. Below is what you need to know.



What Were the Rules Before the 2025 Change?

  • 10-Year Rule (Introduced by the SECURE Act in 2020): Previously, many non-spousal beneficiaries were required to fully deplete inherited IRAs within 10 years. However, there was some ambiguity about whether you had to take annual distributions within that 10-year period, especially if the original owner had already started taking RMDs. In practice, many beneficiaries simply needed to ensure the account was emptied by the end of the 10th year.

  • RMD Rules: If the original account owner had started taking RMDs, beneficiaries often continued to take annual RMDs. But the exact enforcement of annual RMDs under the 10-year rule was not always crystal clear, leading to confusion and varied interpretations.


New Updates for 2025

  1. Annual RMD Requirements

    • Beginning in 2025, most inherited IRA beneficiaries will be subject to annual required minimum distributions (RMDs). Failing to take an annual RMD can result in penalties of up to 25% (which can be reduced to 10% if corrected quickly).

  2. Enforcement of the 10-Year Rule

    • Non-spousal beneficiaries must still fully deplete their inherited IRAs within 10 years of the original owner’s death. Unlike some previous interpretations, annual RMDs are now generally required each year within that 10-year timeframe.


Spouses and Special Cases

  • Spousal Beneficiaries

    • Surviving spouses may treat an inherited IRA as their own or withdraw from it as a beneficiary. Roth IRAs offer additional flexibility because they allow tax-free growth and do not require RMDs during the original owner’s lifetime.

  • Minor Children

    • Minor children have until age 31 to deplete the inherited IRA, with the 10-year clock starting at age 21.

  • Disabled Beneficiaries

    • In some cases, disabled beneficiaries may be exempt from the 10-year rule entirely, allowing them to take distributions under a separate schedule.


Planning Strategies

  1. Spread Out Withdrawals

    • Instead of taking large withdrawals in a single year, consider distributing the funds evenly over 10 years. This approach may help you avoid jumping into a higher tax bracket.

  2. Time Your Distributions

    • If you expect your income (and thus your tax rate) to fluctuate, plan withdrawals during years when your tax rate is likely to be lower to maximize overall savings.

  3. Consult with Tax Professionals

    • The rules surrounding inherited IRAs can be complex. Working with experienced professionals ensures you stay compliant and make the most of your inheritance.

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