Inherited IRAs: What Beneficiaries Need to Know in 2025

Inherited IRAs can be one of the most valuable assets passed down to a beneficiary -but the rules for taking withdrawals have changed dramatically over the last few years.SECURE Act 1.0, SECURE Act 2.0, and now full 2025 IRS enforcement have created a new system that can feel confusing for families.

This guide breaks everything down in simple, clear terms so you can avoid penalties, reduce taxes, and choose the right withdrawal strategy.

🟢 2025 Update: What Actually Changed?

The IRS has now fully reinstated enforcement of inherited IRA withdrawal rules.Here’s what that means:

🔹 If the original IRA owner had already started RMDs before passing away, the beneficiary must now take annual RMDs in years 1–9 and empty the account by year 10.

🔹 If the original owner had NOT begun RMDs, the beneficiary must still empty the account by year 10, but annual RMDs in years 1–9 may not be required.

🔹 RMDs for original owners now begin at age 73, which affects whether annual beneficiary RMDs apply.

🔹 Roth IRAs inherited by non-spouse beneficiaries still require full distribution by year 10 — but withdrawals are tax-free.

In short:The “wait until year 10” strategy is mostly gone.Most beneficiaries will need to plan annual withdrawals starting in 2025.

🟢 Types of Inherited IRAs

Before choosing a strategy, beneficiaries must understand what they inherited.

🔹 Inherited Traditional IRAWithdrawals are taxable as ordinary income.Timing rules vary based on beneficiary type.

🔹 Inherited Roth IRAWithdrawals are tax-free if the original Roth was open for at least five years.Timing rules still apply - most beneficiaries must empty the account within 10 years.

Even a tax-free Roth still has strict distribution deadlines.

🟢 Beneficiary Categories: The Rules Depend on Who You Are

IRS rules classify beneficiaries into three groups. Each group has different rights.

1. Eligible Designated Beneficiaries (EDBs)

These beneficiaries have the most flexibility:

🔹 Surviving spouse.

🔹 Minor child of the original IRA owner (until age of majority).

🔹 Disabled beneficiaries.

🔹 Chronically ill beneficiaries.

🔹 Individuals less than 10 years younger than the original owner.

EDBs can still use the “lifetime stretch”, taking smaller RMDs over their life expectancy.

2. Non-Eligible Designated Beneficiaries (Most Adult Beneficiaries)

This includes:

🔹 Adult children.

🔹 Grandchildren.

🔹 Siblings.

🔹 Friends.

These beneficiaries fall under the 10-Year Rule, with 2025 RMD enforcement now active.

3. Non-Designated Beneficiaries

These follow strict rules and include:

🔹 Estates

🔹 Charities

🔹 Certain non-qualifying trusts

These accounts follow 5-year rules or remaining life expectancy rules, depending on when the owner passed.

🟢 The 10-Year Rule in 2025 (Most People Fall Here)

If you are a standard adult beneficiary (child, sibling, friend), this is your rule:

🔹 You must empty the account by December 31 of the 10th year after the owner’s death.

🔹 If the owner had already started RMDs, you must also take annual RMDs in years 1–9.

🔹 You may no longer delay all withdrawals until year 10 — the IRS is enforcing annual distributions.

This is the rule that catches most families by surprise.

🟢 Stretch IRA Rules (Still Available — But Only for EDBs)

Only Eligible Designated Beneficiaries can stretch distributions over a lifetime.

Examples:

🔹 A surviving spouse rolling the IRA into their own.

🔹 A minor child (but only until they reach majority, then the 10-year rule begins).

🔹 A disabled or chronically ill beneficiary who qualifies under IRS definitions.

EDBs have more flexibility — but improper classification can trigger penalties.

🟢 Tax Implications in 2025: What Beneficiaries Should Expect

For Traditional Inherited IRAs:

🔹 Every withdrawal is taxed as ordinary income.

🔹 Large withdrawals can push you into a higher bracket.

🔹 RMD penalties can apply if missed.

For Roth Inherited IRAs:

🔹 Withdrawals are tax-free if the 5-year rule is satisfied.

🔹 Timing rules still apply - waiting until year 10 may grow tax-free gains, but you cannot ignore deadlines.

🟢 Smart Withdrawal Strategies for 2025

Beneficiaries can significantly reduce taxes with the right plan.

🔹 Take smaller RMDs annually to avoid large year-10 tax shocks.

🔹 Match withdrawals with low-income years (e.g., between jobs, during retirement, business loss years).

🔹 Consider spreading income evenly across all 10 years.

🔹 For Roth IRAs, allow funds to compound for 10 full years tax-free, then withdraw by the deadline.

🔹 Analyze whether a trust was named beneficiary - the rules become more complex.

Inherited IRAs require tax-aware planning, not guesswork.

🟢 Common Mistakes in 2025 (Avoid These)

🔹 Believing Roth IRAs have no rules - they still must be emptied by year 10.

🔹 Missing annual RMDs because the original owner had already begun theirs.

🔹 Taking all funds in year 10 and triggering unnecessary taxes.

🔹 Rolling the account into your own IRA when you are a non-spouse (prohibited).

🔹 Naming the wrong type of trust, causing expensive tax acceleration.

One misunderstanding can cost an heir thousands of dollars.

🟢 The Big Picture

Inherited IRAs can be a gift or a tax burden, depending on how the beneficiary handles distributions.The IRS is now actively enforcing the rules again in 2025, which means timing, strategy, and proper classification matter more than ever.

A well-planned withdrawal strategy can:

🔹 Reduce lifetime taxes

🔹 Avoid penalties

🔹 Preserve more of the inheritance

🔹 Support long-term family goals

When families receive inherited retirement accounts, they almost always benefit from professional guidance.

Need Help Navigating an Inherited IRA? Pacific Data Is Here to Support You

At Pacific Data, we help families understand the 2025 rules around inherited Traditional IRAs, Roth IRAs, RMDs, and trust-based beneficiary structures.If you or a loved one recently inherited retirement accounts, we can build a tax-efficient withdrawal plan, ensure compliance, and help protect the value of your inheritance.

Reach out anytime - we’re here to guide you every step of the way.