Heirs Face a 25% Penalty in 2026 if They Don’t Take Required IRA Distributions Under the 10‑Year Rule

If you inherited an IRA in the last few years, there’s a good chance you’ve been hearing about the “10-year rule,” but not fully understanding the consequences. That confusion is now becoming expensive. Many heirs are discovering that missing required distributions can trigger a steep 25% penalty on the amount they failed to withdraw.

The rule stems from changes under the SECURE Act, which eliminated the old “stretch IRA” strategy for most non-spouse beneficiaries. Now, instead of spreading withdrawals over decades, heirs must empty the account within 10 years. Here’s what you need to know about these changes.

How the 10-Year Rule Actually Works for Inherited IRAs

Under current inherited IRA rules, most non-spouse beneficiaries must fully withdraw the account by the end of the 10th year after the original owner’s death. However, what trips people up is that some heirs must also take annual required minimum distributions (RMDs) during years one through nine.

If the original account holder had already started RMDs, the beneficiary usually must continue taking them annually. This means you can’t simply wait until year 10 and withdraw everything in one lump sum without consequences.

The 25% Penalty That’s Putting Inheritances at Risk

The IRS imposes a penalty when you fail to take the full required distribution from an IRA. As of 2026, that penalty is typically 25% of the amount you should have withdrawn but didn’t. For example, if your required distribution was $20,000 and you skipped it, you could owe a $5,000 penalty on top of income taxes.

That’s a significant hit, especially for retirees relying on inherited funds. The penalty can be reduced to 10% if corrected quickly, but many heirs don’t realize the mistake until it’s too late.

How a Simple Mistake Becomes Costly

Imagine inheriting a $400,000 IRA from a parent who had already begun RMDs. Based on IRS tables, you might need to withdraw roughly $15,000–$20,000 annually, depending on your age. If you skip even one year because you thought the 10-year rule allowed flexibility, you could trigger a penalty on the missed amount. That penalty alone could wipe out months of retirement income or savings. Add in federal taxes on distributions, and the financial damage compounds quickly.

Common Misconceptions About Inherited IRA Rules

One of the biggest myths is that the 10-year rule means “no withdrawals until the end.” That’s not always true, especially when the original owner had already started RMDs. Another misconception is that penalties are rare or easy to waive, but the IRS has been tightening enforcement as rules become clearer.

Some heirs also assume their financial advisor or brokerage will automatically handle everything, which isn’t always the case. While custodians report distributions, the responsibility ultimately falls on the beneficiary. But luckily, there are things you can do to avoid penalties.

• Create a withdrawal plan as soon as you inherit the IRA.
• Try to spread distributions evenly over the 10-year period to avoid tax spikes and missed deadlines.
• Set calendar reminders or automate withdrawals to help ensure you never skip a required distribution.
• Consult a tax professional, especially if the account holder passed away after starting RMDs.

Inherited IRA withdrawals are generally taxed as ordinary income, which can push you into a higher tax bracket. If you delay withdrawals until later years, you may end up taking large distributions that significantly increase your taxable income. This is why many experts advise taking smaller, consistent withdrawals instead of waiting. The goal is to balance tax efficiency with compliance under inherited IRA rules. Without a plan, heirs often end up paying both higher taxes and penalties. That combination can dramatically reduce the value of the inheritance.

Have you (or someone you know) dealt with an inherited IRA? What surprised you most about the rules? Share your experience in the comments.

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Drew Blankenship

Drew Blankenship is a seasoned automotive professional with over 20 years of hands-on experience as a Porsche technician.  While Drew mostly writes about automotives, he also channels his knowledge into writing about money, technology and relationships. Based in North Carolina, Drew still fuels his passion for motorsport by following Formula 1 and spending weekends under the hood when he can. He lives with his wife and two children, who occasionally remind him to take a break from rebuilding engines.