She Inherited Her Mother’s $180,000 IRA at 58 and Was Told She Had 10 Years to Empty It. Nobody Told Her the IRS Also Wants a Withdrawal in Each One of Them

Key Points:

• A 58-year-old daughter inheriting her mother’s $180,000 traditional IRA must empty the account within 10 years, but if her mother had started required minimum distributions (RMDs), she must also take annual withdrawals in years one through nine.
• The IRS finalized in 2024 that non-spouse beneficiaries cannot skip annual RMDs to wait for a lower-tax year at the end, with enforcement starting in the 2025 tax year; this rule replaces the previous stretch IRA option for most heirs.
• There are two different 10-year withdrawal rules depending on whether the original IRA owner died before or after reaching age 73 (the required beginning date for RMDs), affecting whether heirs can delay distributions or must take annual RMDs based on their life expectancy.
• Missing an inherited IRA RMD can result in penalties up to 25%, reduced to 10% if corrected within two years by filing Form 5329, alongside ordinary income taxes on withdrawals that can significantly impact heirs’ tax brackets and Medicare premiums.
• Heirs are advised to verify the decedent’s RMD status, plan withdrawals around their own income fluctuations to minimize tax impact, and promptly correct any missed distributions to avoid heavier penalties.