We get a version of this call a few times a year. Someone's parent has passed, and along with the grief there's an IRA with the son's or daughter's name on it. A few hundred thousand dollars, sometimes a good deal more. After the weeks they've had, it feels like a small mercy. Mom or Dad left something behind. And then, almost every time, the same sentence: "I've got ten years to figure out what to do with it, right?"
Sort of. And the "sort of" is where good families walk into a tax trap they never saw coming.
I'm not the advisor in these meetings. My father is. I'm the one who sits in, listens, and writes about the things I watch people get blindsided by, so the folks who aren't in the room get the heads up. This is one of the big ones right now, and 2025 is the first year it truly bites.
What people think the rule says
Here's the version most people have heard. If you inherit an IRA from someone who isn't your spouse, you have ten years to empty it. No more stretching the withdrawals across your whole lifetime the way your parents' generation could. Ten years, and then the account has to be at zero.
That part is true. It came in with the SECURE Act back in 2019, and for most adult children inheriting from a parent, the ten-year clock is the rule.
The trouble is what most people assume comes next: that they can leave the money alone for nine years and take it all out at the end. Or dip in whenever they feel like it. Their money, their timing.
For a lot of inheritors, that assumption is wrong, and it's expensive.
The trap: a withdrawal every single year
Whether you can coast for nine years comes down to one thing most people never think to ask. Was the person you inherited from already taking their required withdrawals?
If your parent had reached the age when the government makes you start drawing down a traditional IRA, that is 73 now, then they were already taking those required withdrawals every year. And when that is the case, the rules say you have to keep the money moving too. You owe a withdrawal in year one, in year two, and in every year through year nine. Then you still have to empty whatever is left by the end of year ten.
So it is not ten years of freedom followed by one big decision. It is nine years of required withdrawals and a hard deadline at the end.
If the person died before they had started those withdrawals, you catch a break. No annual requirement, just the ten-year finish line. But for the most common case we see, an adult child inheriting from a parent who was already in their late seventies or eighties, the yearly requirement is on.
Why this is suddenly a problem in 2025
If this is the first you are hearing of it, you are in good company, and it is not entirely your fault. When the rule changed, even the tax world was not sure how it worked. So the IRS did something unusual. It waived the penalty for missing those yearly withdrawals for four years running, 2021 through 2024, while it settled the details.
Those details are now final. The IRS locked the regulations in place in the summer of 2024, and the free pass is over. Starting with 2025, the annual withdrawals are real, and skipping one carries a penalty again.
That penalty used to be a genuinely painful 50 percent of the amount you should have taken. A recent law softened it to 25 percent, and as little as 10 percent if you catch it and fix it quickly. Better. Still a penalty for a mistake you did not know you were making.
The bigger cost isn't the penalty
Here is what I actually watch families lose sleep over, and it is not the penalty. It is the tax bill on the withdrawals themselves.
Every dollar that comes out of a traditional inherited IRA counts as income to you, in the year you take it. Squeeze a large account into a few years, or ignore it until year ten and pull it all at once, and you can push yourself into a higher tax bracket, raise what you pay for Medicare, and hand a chunk of the inheritance to the IRS that a little planning would have kept in your family.
We had a version of this exact conversation with someone who had inherited a sizable account and had no idea the yearly withdrawals applied to her. She had been planning to let it ride. Spread thoughtfully across the ten years instead, lined up against the rest of her income, the difference was not small. That is the whole game here. Not whether you pay tax, but when, and how much, and whether it lands in a year that costs you elsewhere.
A couple of things worth knowing
Two quick footnotes, because they matter.
If what you inherited is a Roth IRA, breathe easier. The ten-year deadline still applies, but there are no required yearly withdrawals along the way, because Roth accounts never had them. You have real flexibility there.
And not everyone is on the ten-year clock at all. A surviving spouse has their own, better options. So do a handful of others, including a beneficiary who is chronically ill or disabled, or one who is not more than ten years younger than the person who passed. If that is you, the rules are different, and worth a real conversation.
What to actually do
If you have inherited a traditional IRA in the last few years, or you expect to, three things are worth doing now, not in year nine.
Find out whether the original owner had started their required withdrawals. That single fact decides whether the yearly requirement applies to you.
If it does, make sure you have taken this year's. The pass is gone.
And before you decide when to pull the rest, look at it against the rest of your financial life: your other income, your tax bracket, the year you might retire. The ten-year window is actually a planning opportunity if you treat it like one. It is only a trap if you ignore it until the end.
Why I write about this at all
My father has spent a career sitting across from families and walking them through exactly this. He can only do it one family at a time. I write so the next family gets the heads up before the mistake, not after.
Because an inheritance is not really about the account balance. It is the last thing someone who loved you was able to hand you. The kindest thing you can do with it is make sure a deadline they never knew about does not quietly take a piece of it.
If you want help thinking it through, or you want to spare your own kids this exact surprise someday, that is the whole reason we built BeneficiaryBox. Start there.
Easy Eddie's Take The ten-year rule is not the trap. Assuming ten years means "do nothing for nine" is. Find out whether the person you inherited from was already taking withdrawals. If they were, you owe one every year, starting this year, and the penalty pass ended in 2024. Map the withdrawals across the whole window on purpose, and you keep more of what they left you.
Disclaimer: The information in this article is for educational purposes only and does not constitute tax, legal, or investment advice. Tax laws change frequently, and individual circumstances vary. American Retirement Advisors does not provide tax or legal services. Before making any tax-related decisions, consult a qualified CPA, tax attorney, or financial planner who can evaluate your specific situation.