Inherited IRA Distribution Calculator

What This Calculator Does

Enter your relationship to the account owner, both of your ages, whether the owner died before or after their Required Beginning Date, and the account details, and this tool tells you whether you're subject to the 10-year rule or can stretch distributions over your own life expectancy. It then builds a year-by-year distribution schedule with estimated income tax, so you can see roughly what you'll owe and when.

The 10-Year Rule, in Plain English

Before 2020, most people who inherited an IRA could "stretch" distributions over their own life expectancy, sometimes for decades. The SECURE Act eliminated that for most beneficiaries. Under the current rule, a designated beneficiary who is not an "eligible designated beneficiary" (defined below) must empty the inherited account entirely by December 31 of the 10th year after the year the owner died. There is no requirement to take anything out in years one through nine, unless the owner had already started their own required minimum distributions (RMDs) before death, in which case annual RMDs are also required during those years, on top of the 10-year deadline.

That last part trips people up. The IRS finalized regulations confirming that if the original owner died on or after their Required Beginning Date, most beneficiaries subject to the 10-year rule must take annual RMDs in years one through nine, calculated off their own life expectancy, and still empty the account by the end of year ten. Skipping annual RMDs in that situation is a compliance failure, not an option.

Who Qualifies as an Eligible Designated Beneficiary (EDB)

The 10-year rule does not apply to everyone. Five categories of beneficiaries, called eligible designated beneficiaries under IRC § 401(a)(9)(E)(ii), get to stretch distributions over their own life expectancy instead:

• Surviving spouse. A spouse also has the option to roll the account into their own IRA or treat it as their own, which resets everything to the spouse's own required beginning date.
• Minor child of the account owner. Only the owner's own minor child, not a grandchild or other minor relative. The stretch continues until the child turns 21, at which point the 10-year clock starts on whatever balance remains.
• Disabled beneficiary, as defined by IRC § 72(m)(7).
• Chronically ill beneficiary, as defined in the regulations under IRC § 7702B(c)(2).
• Beneficiary not more than 10 years younger than the account owner. A sibling close in age, for example, often qualifies.

Everyone else, adult children in most cases, grandchildren, more distant relatives, friends, and non-spouse trust beneficiaries who don't fit one of the categories above, is subject to the 10-year rule.

RMD Basics

A required minimum distribution is the minimum amount the IRS requires you to withdraw from a retirement account in a given year. For inherited accounts, the RMD is calculated by dividing the account balance at the end of the prior year by a life expectancy factor from the IRS Single Life Expectancy Table. Non-spouse beneficiaries generally use the "reduce by one" method: look up the factor for your age the first year, then subtract one from that factor each following year, rather than looking your age back up in the table. A surviving spouse who remains a beneficiary (rather than rolling the account over) gets to recalculate the factor every year based on their then-current age, which stretches distributions out further.

The original account owner's own required beginning date is age 73 for most people currently reaching that age. Whether the owner had passed that date before death, not the beneficiary's age, determines whether annual RMDs are layered on top of the 10-year rule.

The Penalty for Missing an RMD

Missing a required distribution is expensive. The excise tax on a missed or shortfall RMD is 25% of the amount that should have been withdrawn. If the shortfall is corrected within the IRS's correction window, that penalty drops to 10%. It does not go away on its own, and it applies whether the miss was intentional, an oversight, or a misunderstanding of which rule applies to your situation. Getting the classification right in the first place, spouse, minor child, disabled, chronically ill, within 10 years, or everyone else, is what determines whether you owe anything at all in a given year.

Roth vs. Traditional Inherited IRAs

The 10-year rule and the eligible designated beneficiary categories apply the same way to inherited Roth IRAs as they do to traditional IRAs. What changes is the tax bill. Qualified distributions from an inherited Roth IRA are generally income tax-free, because the owner already paid tax on the contributions. Distributions from an inherited traditional IRA or 401(k)/403(b) are taxed as ordinary income to the beneficiary in the year received.

One important wrinkle: under the current IRS position, a beneficiary subject to the 10-year rule does not owe annual RMDs on an inherited Roth IRA in years one through nine, even if the original owner had reached their required beginning date, because Roth owners are treated as never reaching their required beginning date during their own lifetime. The account still must be emptied by the end of year 10. Because Roth distributions are tax-free, there is often an advantage to leaving the money invested as long as possible and taking the full distribution near the end of the 10-year window, rather than spreading it out, so more growth happens inside the tax-free account.

Related Resources

• Inherited IRA and the 10-year rule in California, a fuller guide to this topic
• Free estate planning tools from Ridley Law
• Trust administration services at Ridley Law