The inherited IRA 10-year rule for parents nearing retirement

The kids can just wait until year ten

“The kids can just wait until year ten.” That belief is only partly true. If you die on or after your required beginning date, a non-spouse heir must take an annual withdrawal in years one through nine and still empty the inherited IRA by December 31 of year ten.

Another belief is that dividing a $900K IRA into two $450K shares treats two children equally. A child paying 32 percent tax keeps $306K of that share, while a sibling in a 12 percent bracket keeps $396K. The account split is equal; what they can spend is not.

An inherited Roth IRA has the same 10-year clock for most adult children. If the Roth has met its five-year holding rule, the heirs generally owe no income tax on withdrawals and have no annual withdrawal requirement before year ten, so they can leave the account invested longer.

How does the inherited IRA 10-year rule work for our kids?

The inherited IRA 10-year rule generally gives a non-spouse adult child until December 31 of the 10th year after the year of death to empty the account; annual withdrawals also apply in years one through nine when the owner died after the required beginning date. The IRS sets that date as April 1 after age 73, or after age 75 for someone born in 1960 or later. Glenn and Monique fall in the later group.

Five eligible designated beneficiaries can still use life-expectancy withdrawals: a surviving spouse, the owner’s minor child until age 21, a disabled heir, a chronically ill heir, or an heir no more than 10 years younger than the owner. A surviving spouse can usually treat the IRA as their own and wait for their own required distribution age. The children’s clock would begin after the second death.

An heir’s annual amount is figured from the prior December 31 balance. The custodian normally reports that balance in January, so save that statement with the tax paperwork.

The SECURE Act ended the lifetime stretch for most heirs

Before the SECURE Act, many adult children could take modest inherited IRA withdrawals over their own life expectancies for decades. For owners who died after 2019, most adult children have a 10-year window instead. That change made a large traditional IRA less attractive as a long-held inheritance for a child in peak earning years.

The IRS later finalized the annual-withdrawal requirement when the parent died after the required beginning date. IRS relief for missed annual withdrawals while the rules were unsettled has ended. Skipping a required withdrawal can bring a 25 percent excise tax on the shortfall, which drops to 10 percent if the heir corrects it in time.

Older estate paperwork deserves attention too. A conduit trust that directs only required IRA amounts to a child each year may now force the full account out within ten years. Have an estate lawyer read the trust language before assuming it still does what you intended.

A trust written for the old stretch rules

Option one: leave the IRA alone and let the 10-year clock run

Leaving the IRA alone creates no conversion tax today and preserves the account for your spending or possible long-term care needs. It can fit when your children will likely pay less tax than you do, or when a charity will receive the IRA and pay no income tax on it. But the pre-tax account can keep growing, along with the eventual tax bill over the heirs’ ten-year window.

Option two: Roth conversions in the nine years before Glenn's RMDs at 75

Glenn, 66, and Monique, 64, have $1.4M across two 401(k)s, an IRA, and a brokerage account. Glenn retired as an operations manager for a regional grocery chain, Monique worked as a dental hygienist, and they have no pension or mortgage. Their spending is about $7,500 monthly, and Glenn may wait until age 70 for Social Security. Those years before his required minimum distributions at 75 may be their lowest-income years.

For illustration, Glenn and Monique hold $900K of their $1.4M in pre-tax accounts, with two adult children set to inherit what remains. Assume each child would pay 32 percent on inherited withdrawals. The couple converts $50K annually at a 22 percent rate and pays the tax from their $500K brokerage account, so the full $50K reaches the Roth.

Starting now gives them nine years before Glenn’s required distributions: 9 × $50K = $450K converted. The rate difference is 32 percent minus 22 percent, or 10 percent. Ten percent of $450K is $45K of family tax avoided, before growth. Waiting two years leaves seven conversion years: 7 × $50K = $350K, and a $35K rate difference. Waiting five years leaves four years: 4 × $50K = $200K, and a $20K rate difference.

The delay costs $10K to $25K before any investment growth. You can plug other conversion amounts and tax-rate guesses into our online calculator to see how the gap shifts. Investments in either a traditional IRA or Roth IRA can decline below the amount invested, so a conversion is not a return promise.

Each fall, Tolleson Wealth Management sets the couple’s next-year spending inside guardrails first. Their $7,500 monthly amount may rise after strong markets or be trimmed after weak ones. Then we use the remaining room in their current tax bracket to size a conversion. After age 63, conversions can raise Medicare premiums two years later; the firm’s IRMAA information explains why that timing matters. A completed Roth conversion cannot be undone.

Two small mistakes often travel together. A couple skips conversions through low-income years, giving up the $45K difference in this example. Then one child waits and takes a full $450K share in year ten, when that approach is permitted because the parent died before required distributions began. At about 35 percent rather than 32 percent, that extra 3 percent costs $13,500. Together, those choices can add about $58,500 in family tax.

A shrinking window before required distributions

The tax paid today is certain

Option three: spend or give more now, inside Tolleson Wealth Management's guardrails

When markets put a portfolio above its upper spending guardrail, Tolleson Wealth Management may fund a spending raise from the IRA rather than the brokerage account. The parents pay tax at their own rate, and less pre-tax money remains for the children’s compressed withdrawal period.

A gift can also let children use money while you are alive. The IRS annual gift tax exclusion for 2026 is $19,000 per recipient, so Glenn and Monique together could give $38,000 to each child. From age 70½, a qualified charitable distribution can send IRA money directly to charity without counting as income; check the current IRS limit before arranging one.

What do we do first, and by which date?

Start by listing every pre-tax account, including both 401(k)s and the IRA, with its balance and current beneficiary form. Bring this paperwork to the first meeting. Old beneficiary forms are common after remarriage or a death in the family, and a beneficiary form can usually be changed while you are alive.

Next, estimate each child’s likely tax rate in their 50s, when they may inherit, and compare it with your rate this year. Each October or November, after income is clearer, choose the conversion amount and finish it by December 31. Add the decision to the playbook and revisit it at each annual meeting.

The October–November row is where the answer flips: it is late enough to see much of the year’s income, but early enough to complete a conversion before year-end. Estimated tax dates matter for both parent and heir.

Put dates beside the account balances

• List pre-tax accounts and beneficiary forms.
• Compare your rate with each child’s likely rate.
• Complete any chosen conversion by December 31.
• Record the choice in the playbook.

Should Monique be first in line, or the kids?

Naming Monique as Glenn’s primary beneficiary lets her generally treat his IRA as her own, convert at her own pace, and postpone the children’s 10-year clock until her death. Naming the children directly starts their clock at Glenn’s death, which can be costly if they are still in their peak earning years.

The choice also depends on what the money is for. Leaving the IRA alone can fit a lower-bracket heir or charity. Converting can fit high-earning children when the parents have taxable cash for the conversion tax. Spending or gifting can fit parents who want to see their children use the money now.

A disabled or chronically ill child may be an eligible designated beneficiary who can use life-expectancy withdrawals. A lawyer should draft any trust holding that child’s share. In some families, pre-tax money for that child and Roth money for a high-earning sibling creates a fairer after-tax result.

Three choices, different family outcomes

Your children's 10-year clock, priced at the annual meeting

At each annual meeting, Tolleson Wealth Management compares your tax rate this year with the rate your children may face later. We write any conversion amount into the playbook beside that year’s spending guardrails, then revisit it as income, health needs, and beneficiary choices change.

Tolleson Wealth Management meets with clients across the country by phone or shared-screen video. To start, send us a short note through the form on this page listing the pre-tax accounts your children would inherit, and we will set up a first call.