Inherited Roth IRA Ten-Year Rule

When a non-spouse beneficiary inherits a Roth IRA, the inherited Roth IRA ten-year rule requires the entire account to be emptied by the end of the tenth calendar year following the original account holder’s death. The key surprise: even though distributions from the inherited Roth are tax-free (because the original contributions and earnings were already sheltered by the Roth), the beneficiary cannot simply leave the money to compound inside the inherited account.

The Pre-SECURE 2.0 Rule (Stretch IRA)

Before the SECURE Act of 2019 and SECURE 2.0 of 2022, non-spouse Roth IRA beneficiaries could use the “stretch IRA” strategy. They inherited the account and took only required minimum distributions (RMDs) each year—amounts based on the beneficiary’s life expectancy, often quite small. The remainder of the Roth could sit untouched, compounding tax-free for decades.

A beneficiary age 35, inheriting a $500,000 Roth IRA, might be required to withdraw only $15,000 per year initially, leaving $485,000 to keep growing tax-free. Over 30 years, that compounding could double or triple the inherited value. This was a powerful wealth-transfer vehicle.

SECURE 2.0 eliminated the stretch IRA for most beneficiaries. Congress wanted to prevent the transfer of large, tax-sheltered pools of capital across generations without taxation. The ten-year rule was the compromise.

The Ten-Year Deadline and No RMD Option

Under the new rules, a non-spouse beneficiary who inherits a Roth IRA must take all distributions—withdrawing the entire balance—by December 31 of the tenth calendar year following the year of the original owner’s death.

The critical word is “calendar year.” If the Roth IRA owner died on June 15, 2024, the ten-year window runs through December 31, 2034. The beneficiary has flexibility on when to take distributions during those ten years—January or December, lump sum or spread across multiple years—but the account must be empty by the end of year ten.

Importantly, the beneficiary does not face required minimum distributions (RMDs) during the ten-year period. The rule does not mandate taking any distribution in year one, year five, or year nine. The beneficiary can take $0 for nine years, then withdraw the entire balance in year ten if desired. This differs sharply from inherited traditional IRAs, where non-spouse beneficiaries often must take annual RMDs based on their age.

Tax Treatment of Distributions

Distributions from an inherited Roth IRA are tax-free to the beneficiary. The original owner had already paid tax on contributions (or the contributions were made pre-tax but the conversion was taxed), and the Roth’s earnings had grown sheltered. When the beneficiary withdraws, the combination of contributions and earnings comes out tax-free.

This is true regardless of when the distribution occurs—year one, year ten, or anywhere in between. The beneficiary faces no federal income tax on the withdrawal. There is also no Medicare Income-Related Monthly Adjustment Amount (IRMAA) triggered by the distribution, since it is not taxable income.

However, the absence of taxation does not mean the beneficiary can ignore the ten-year rule.

The Excise Tax Penalty for Missing the Deadline

If the beneficiary fails to fully distribute the inherited Roth IRA by December 31 of the tenth year after death, the remaining balance is subject to a 25% excise tax under IRC Section 4974. This is a penalty tax, in addition to any income tax (which in the case of a Roth is zero, since distributions are tax-free, but the penalty is imposed on the undistributed amount).

Example: A beneficiary inherits a $100,000 Roth IRA in 2024 and fails to withdraw anything by December 31, 2034. The remaining $100,000 (presumably larger due to growth) is subject to a 25% excise tax. If the account has grown to $150,000, the penalty is $37,500, owed by April 15 of the year following 2034.

The SECURE 2.0 Act included a temporary mercy rule: if the beneficiary misses the deadline but cures the violation by filing an amended return and paying the penalty by April 15 of the next year, the excise tax is reduced to 10%. This is a one-time opportunity and requires immediate corrective action.

Special Rules for Spouse Beneficiaries

A spouse who inherits a Roth IRA has different options. The spouse can elect to treat the inherited Roth as his or her own, in which case the stretch IRA rules do not apply and the ten-year rule may not trigger (if the spouse is young enough to benefit from stretch IRA provisions for a new account, or simply keeps the account until his or her own death).

Alternatively, a spouse can elect to keep the account as an inherited IRA and is subject to the ten-year rule. Spouses thus have more flexibility and favorable timing than non-spouse beneficiaries.

Planning Implications

The ten-year rule creates several planning considerations:

• Immediate withdrawal: A beneficiary in a high tax bracket might withdraw the inherited Roth early (within the ten-year window) while income is low, avoiding any tax and smoothing income across years.
• Late withdrawal: A beneficiary might defer distributions until year ten, allowing the account to compound tax-free for a decade before the forced withdrawal. This is attractive if the beneficiary does not need the money and expects to be in a similar tax bracket in ten years.
• Contingent beneficiary: If the primary beneficiary predeceases, the remaining balance must still be distributed by the end of the original ten-year window, now running from the death of the original IRA owner, not the primary beneficiary.
• No stretch opportunity: Unlike traditional IRAs, where certain beneficiaries can still use stretch IRA rules in narrow circumstances, Roth IRAs offer non-spouse beneficiaries no legitimate extension beyond ten years.

Interaction with Roth Conversion Ladders

Some beneficiaries use the inherited Roth as part of a broader Roth conversion strategy. They might convert portions of an inherited traditional IRA to an inherited Roth (if permitted by the Roth’s terms) to take advantage of tax-free growth during the ten-year window. The ten-year rule then applies to the converted Roth as well.

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