The 10-Year Rule on Inherited IRAs in California

Your retirement accounts do not follow your trust or your will. A 401(k) and an IRA pass by the beneficiary designation on the account, the form that says who inherits it. That form beats every document in your binder. You can have a perfect trust, signed and notarized, and the account still goes to whoever is named on the form at the bank or brokerage.

The second thing to know is the federal 10-year rule. When most people other than a surviving spouse inherit a traditional retirement account, they have to empty it within ten years, and the withdrawals are taxed as income. That can hand one of your kids a tax bill the other never sees, so a split that looks equal on paper can end up far from equal after tax.

The beneficiary form overrides everything

Your will and your trust control most of what you own. Retirement accounts are the exception. They go to the person named on the beneficiary form, and that name wins even when it contradicts everything else you signed.

The classic example is a stale ex-spouse. Someone gets divorced, updates the will and the trust, names the kids in both, and never touches the 401(k) form from their first job. They die. The ex-spouse is still listed, so the ex-spouse inherits the account, no matter what the rest of the plan says. The kids get nothing from it, and there is usually nothing they can do. It does not have to be an ex, either. An old form might name a parent who has since died, or no one at all, which can send the account into probate, the court process after death. If you have not looked at these forms in a few years, you do not actually know where the money is going.

The 10-year rule, in plain English

Under the federal SECURE Act, most non-spouse heirs have to empty an inherited traditional IRA or 401(k) by the end of the tenth year after the owner dies. Every dollar that comes out of a traditional account counts as income to the person taking it. Ten years sounds like room to breathe, but it often is not, because that money lands on top of the heir’s paycheck.

There is a wrinkle inside the ten years. If the owner had already reached the age where they were required to start taking withdrawals, the heir generally also has to take a withdrawal in each of years one through nine, not just empty the account by year ten. The IRS began enforcing those annual withdrawals in 2025. These rules are federal and they shift, so confirm the current treatment.

Surviving spouses get more room than anyone else. A spouse can often roll the inherited account into their own and treat it as theirs, which sidesteps the 10-year clock. Your children, in most cases, do not get that option.

Why equal is not always fair

Say you want to be even with your two kids, so you leave one a $500,000 traditional IRA and the other a $500,000 Roth IRA, or the house worth about the same. On paper that is a clean split.

After tax, it is not. The child with the traditional IRA has to pull that $500,000 out within ten years and pay income tax on every dollar, often during their peak earning years, stacked on top of their salary. The child with the Roth generally takes it out tax free, and the child with the house owes no income tax to inherit it. Same starting number, very different amount actually kept. One kid can lose six figures to taxes the other never pays.

This is fixable, but only if you look at the after-tax value of each piece instead of the sticker number. Sometimes that means splitting each account between the kids rather than giving one account to each. Sometimes it means using other assets to even things out.

Naming a trust as the beneficiary: when it helps, when it hurts

Sometimes it makes sense to name your trust as the beneficiary instead of a person, to hold the money for a minor, keep it away from a child who is bad with money, or protect an heir who has special needs and relies on benefits. The trust gives you control over how and when the money comes out.

The catch is that a retirement account paid to a trust has to meet specific federal rules, sometimes called the “see-through” rules. Get it right and the trust can stretch withdrawals out as the law allows. Get it wrong and it can speed up the tax, forcing the whole account out faster and into a higher bracket. This is not a do-it-yourself form, and it needs individualized advice.

The practical fix

None of this requires a new estate plan. It requires coordinating the beneficiary forms with the plan you already have:

• Pull every beneficiary form. Each 401(k), IRA, 403(b), pension, and annuity. Read who is named, including the backup.
• Check each against your trust and will. Make sure a trust is named only where it is meant to be and drafted to handle it.
• Compare after-tax value, not dollar amounts. A pre-tax account and a Roth or a house are not the same gift at the same number.
• Update after every big change. Divorce, remarriage, a death, a new account, a rollover. Any of these can leave a form pointing at the wrong person.

Retirement Account Inheritance FAQs

Does my IRA beneficiary form override my trust?

Yes. The form on the account controls who inherits it, and it beats your will and your trust. That is why the forms have to be reviewed alongside the rest of your plan, not left in a drawer.

What is the 10-year rule on inherited IRAs?

Under the federal SECURE Act, most heirs other than a surviving spouse have to empty an inherited traditional IRA or 401(k) by the end of the tenth year after the owner’s death, and withdrawals are taxed as income. In some cases the heir also has to take a withdrawal in each of years one through nine. These are federal rules and they change, so confirm the current treatment.

Should I name my trust as the beneficiary of my IRA?

Sometimes. It can help when you want control, or when an heir is a minor, is bad with money, or has special needs. But the trust has to meet the federal “see-through” rules, or it can speed up the tax instead of helping. This is a decision to make with individualized advice, not off a generic form.

How do I split retirement accounts fairly between my kids?

Look at the after-tax value of each piece, not the sticker number. A $500,000 traditional IRA is worth less in hand than a $500,000 Roth or a house of the same value, because the traditional account gets taxed as it comes out. Splitting each account between the kids, or using other assets to even things out, is often cleaner.

What happens to my 401(k) if my beneficiary form is out of date?

It goes to whoever is named on the form, even if that person is an ex-spouse or has died, and even if your will and trust say otherwise. The fix is to review and update the forms, especially after a divorce, remarriage, or death.

Related: Beneficiary and retirement planning, why equal is not always fair, moving assets into your trust, estate planning overview, naming a trust as a beneficiary.

This is general information, not legal or tax advice. The 10-year rule and other retirement-account tax rules are federal and change over time, so confirm the current rules for your situation. Ridley Law offers a free 60-minute consultation. Call (805) 244-5291 to go through your accounts and your plan together.

Written by Eric D. Ridley. Estate Planning Attorney at Ridley Law, serving Ventura County since 2010. Learn more about Eric →