The Penalty Holiday Is Over
From 2021 through 2024, the IRS repeatedly waived the penalty for skipping annual required minimum distributions (RMDs) on many post-SECURE Act inherited IRAs. That grace period ended with the 2024 final regulations (TD 10001, published July 19, 2024). Starting with the 2025 distribution year, missed inherited-IRA RMDs are subject to a 25% excise tax under IRC Section 4974 — reduced to 10% if the shortfall is corrected in a timely manner.
Because 2025 was the first enforcement year, 2026 is the first full planning cycle where beneficiaries can neither rely on transition relief nor treat the annual RMD as optional. For anyone who inherited a traditional IRA from a parent, sibling, or other non-spouse account owner after 2019, this is the year to confirm the paperwork.
The Two-Track Rule Set
The SECURE Act's 10-year rule requires most non-spouse beneficiaries to fully empty an inherited IRA by December 31 of the tenth year after the original owner's death. The final regulations split those beneficiaries into two tracks based on whether the decedent had already reached their Required Beginning Date (RBD) — generally April 1 of the year after they turned 73.
- Owner died on or after their RBD. Beneficiaries must take an annual RMD in years 1 through 9, calculated using the beneficiary's own life expectancy from the IRS Single Life Table, and empty the account by year 10.
- Owner died before their RBD. No annual RMDs are required in years 1 through 9. The only firm deadline is full distribution by December 31 of year 10.
The distinction matters. A beneficiary in the first track who skips a 2026 RMD faces the 25% excise tax on the amount that should have been withdrawn. A beneficiary in the second track has more flexibility to time distributions around their own tax bracket.
Who Is Still Exempt From the 10-Year Rule
Not every beneficiary is subject to the 10-year clock. The SECURE Act created a category of "Eligible Designated Beneficiaries" (EDBs) who can still stretch distributions over their own life expectancy:
- A surviving spouse
- A minor child of the account owner (until age 21, under the final regs)
- A disabled individual (per IRC Section 72(m)(7))
- A chronically ill individual (per IRC Section 7702B(c)(2))
- Any individual not more than 10 years younger than the account owner
Beneficiaries who inherited before 2020 are also generally grandfathered under the prior stretch-IRA rules.
Practical Steps for 2026
- Confirm which track you are on. Check the original owner's date of birth and date of death against their RBD. Custodians do not always compute this for you.
- Do not miss the December 31, 2026 deadline. Track-one beneficiaries must take the 2026 RMD by year-end. If you missed a 2025 RMD, correct it and file Form 5329 with a reasonable-cause statement to seek the reduced 10% penalty.
- Model the year-10 tax cliff. Waiting until year 10 to drain the account can push a beneficiary into a much higher bracket. Spreading distributions across the 10 years often lowers lifetime tax on the inheritance.
- Coordinate Roth accounts separately. Inherited Roth IRAs are subject to the 10-year full-distribution rule, but no annual RMDs apply in years 1–9 regardless of the decedent's age, because Roth owners have no lifetime RBD.
- Review beneficiary designations on your own accounts. If leaving assets to adult children, consider whether a Roth conversion during your lifetime — or naming a see-through trust — better fits your estate goals under the compressed 10-year window.
The mechanics are unforgiving, but the planning window is still open. Confirming your track, calendaring the RMD, and coordinating with a tax preparer before year-end are the three actions that keep an inheritance from becoming a 25% penalty.
Sources: IRS Final Regulations TD 10001 (July 19, 2024); IRC Section 401(a)(9) and Section 4974; IRS Publication 590-B; Charles Schwab – Inherited IRA Rules & SECURE Act 2.0 Changes; CNBC – Inherited IRAs Have a Key Tax Change for 2025 (Oct. 24, 2025); Ed Slott and Company – IRS Final Regulations on Eligible Designated Beneficiaries.