Income and Assets · Retirement income

Inherited retirement accounts

Verification 2026 Verified
tax year · reviewed 2026-08-19 · Draft for I. Ohu review

Three questions decide everything, and they have to be asked in order. Was there a designated beneficiary — a person, identified by 30 September of the year after death? If so, is that person an eligible designated beneficiary? And had the owner reached the required beginning date before dying? The answers select between a ten-year deadline, life expectancy payments, a five-year deadline, and in one common case a deadline and annual distributions on top of it.

The rule

The default for a designated beneficiary is ten years. Where the employee dies before the entire interest is distributed, the § 401(a)(9)(B)(ii) rule applies by substituting ten years for five, and applies whether or not distributions had already begun (IRC § 401(a)(9)(H)(i)). The interest must be distributed by the end of the calendar year that includes the tenth anniversary of the death (Reg. § 1.401(a)(9)-3(c)(3)).

Life expectancy payments survive only for an eligible designated beneficiary. The § 401(a)(9)(B)(iii) exception applies only in the case of an eligible designated beneficiary (IRC § 401(a)(9)(H)(ii)), which means the surviving spouse; a child of the employee who has not reached majority; a disabled individual within § 72(m)(7); a chronically ill individual within § 7702B(c)(2) as modified; or a person not more than ten years younger than the employee (§ 401(a)(9)(E)(ii)). Status is determined as of the date of death — the closing sentence of that clause says so expressly.

Five years is still the rule where there is no designated beneficiary. A beneficiary that is not an individual — an estate, most charities, a trust that is not a see-through trust — is not a designated beneficiary, and where the employee died before the required beginning date the interest must be distributed within five years (IRC § 401(a)(9)(B)(ii); Reg. § 1.401(a)(9)-3(c)(2)). Where the employee died on or after that date, distributions continue over the employee’s own remaining life expectancy (Reg. § 1.401(a)(9)-5(d)(1)(iii)).

The beneficiary is fixed at death, then filtered. A person designated under the plan as of the date of death counts, unless one of the disregarding events — a qualified disclaimer, or the beneficiary’s own death, or being cashed out — occurs by 30 September of the calendar year following the year of death (Reg. § 1.401(a)(9)-4(c)(1), (2)). That date is a filter, not an opportunity to appoint someone new.

Where the owner died on or after the required beginning date, both requirements apply. Distributions must continue annually, computed under § 1.401(a)(9)-5, for every distribution calendar year until the interest is fully distributed (Reg. § 1.401(a)(9)-5(d)(1)(i)), and the ten-year outer limit in paragraph (e)(2) applies as well. This is the point that took the longest to settle: a beneficiary in this position may not simply wait until year ten.

The surviving spouse has options nobody else has. As sole beneficiary with an unlimited right to withdraw, the spouse may elect to treat the account as their own — by redesignating it, or by deemed election through leaving a required distribution untaken or making a contribution to it — and is then the owner for all purposes of the Code, including § 72(t) (Reg. § 1.408-8(c)(1), (2), (3)). Alternatively, as sole beneficiary the spouse may take life expectancy payments and delay their start until the end of the year in which the employee would have attained the applicable age (IRC § 401(a)(9)(B)(iv)(II); Reg. § 1.401(a)(9)-3(d)).

A minor child’s clock has two stages. Majority is reached on the individual’s 21st birthday (Reg. § 1.401(a)(9)-4(e)(3)). At that point the child ceases to be an eligible designated beneficiary, and the remainder must be distributed within ten years of that date (IRC § 401(a)(9)(E)(iii); Reg. § 1.401(a)(9)-5(e)(4)).

An inherited IRA cannot be rolled over. No amount received from an inherited individual retirement account is eligible for rollover, no transfer from it to another IRA is excluded from gross income, and it cannot be used to make any other rollover — where “inherited” means acquired by reason of another individual’s death by someone who was not their surviving spouse (IRC § 408(d)(3)(C)). A non-spouse beneficiary of an employer plan may take a direct trustee-to-trustee transfer into an IRA that is itself treated as inherited (IRC § 402(c)(11)(A)).

The income tax character does not change on death. The account is income in respect of a decedent, included in the gross income of whoever acquires the right to receive it, in the year received (IRC § 691(a)(1)). Section 1014 does not apply to a right to receive an item of income in respect of a decedent (§ 1014(c)), so there is no basis step-up. Where federal estate tax was paid on the account, the recipient is allowed a deduction for the portion attributable to it (§ 691(c)(1)(A)).

Current figures

Item	2026
The default rule	the entire interest must be distributed by the end of the calendar year that includes the tenth anniversary of the employee's death — the § 401(a)(9)(B)(ii) five-year rule with ten years substituted^TY2026
No designated beneficiary	still the rule where there is no designated beneficiary at all — the entire interest by the end of the calendar year containing the fifth anniversary of death^TY2026
Eligible designated beneficiary	the surviving spouse; a child of the employee who has not reached majority; a disabled individual within § 72(m)(7); a chronically ill individual within § 7702B(c)(2) as modified; and anyone not more than 10 years younger than the employee^TY2026
When status is tested	determined as of the date of the employee's death — a beneficiary who becomes disabled, or who ages past the 10-year gap, afterwards does not change category^TY2026
Determination date	the beneficiary is fixed as of the date of death, but a disclaimer or other disregarding event occurring by 30 September of the calendar year following the year of death removes that person from the determination^TY2026
Death on or after the required beginning date	where the employee died on or after the required beginning date, annual distributions continue for every year until the interest is fully distributed and the ten-year outer limit applies as well — both requirements, not a choice between them^TY2026
Year of death	a required distribution is due for the calendar year of the owner's death, and to the extent it was not distributed to the owner it must be distributed during that year to the beneficiary^TY2026
Surviving spouse — treat as own	a surviving spouse who is sole beneficiary with an unlimited right to withdraw may elect to treat the account as their own, by redesignation or by deemed election, and is then the owner for all purposes of the Code including § 72(t)^TY2026
Surviving spouse — delay	where the surviving spouse is sole beneficiary, life expectancy payments may be delayed until the end of the calendar year in which the employee would have attained the applicable age^TY2026
Minor child	an individual reaches the age of majority on their 21st birthday, after which a minor-child beneficiary ceases to be an eligible designated beneficiary and the remainder must be distributed within 10 years of that date^TY2026
Rollovers	an inherited IRA — one acquired by reason of another individual's death by someone who was not their surviving spouse — cannot be rolled over and cannot be used to make any other rollover; a non-spouse beneficiary of an employer plan may only take a direct trustee-to-trustee transfer^TY2026
Roth accounts	the requirement attaches after the owner's death, and the Roth IRA owner is always treated as having died before the required beginning date — so the ten-year rule or life expectancy payments, never the at-least-as-rapidly rule^TY2026
Income tax character	the account is income in respect of a decedent, taxed to whoever receives it in the year received; IRC § 1014 does not apply, so there is no step-up, and a § 691(c) deduction is allowed for the federal estate tax attributable to it^TY2026

How it works in practice

Take the three questions in order and write the answers down before touching a table. Designated beneficiary or not; eligible or not; before or on-or-after the required beginning date. A great many wrong answers come from doing this backwards — starting with the beneficiary’s age and reaching for a life expectancy figure that the ten-year rule has displaced.

Then handle the year of death separately. Whatever regime governs later years, a required distribution is due for the calendar year in which the owner died, and to the extent the owner did not take it, the beneficiary must (Reg. § 1.401(a)(9)-5(c)(1)). It is computed on the owner’s figures, not the beneficiary’s, and it is easy to miss because the account is usually still being retitled.

Watch the titling itself. An inherited IRA must remain in the decedent’s name for the benefit of the beneficiary. Retitling it into a non-spouse beneficiary’s own name is not a technical slip: it is a distribution of the whole account, because § 408(d)(3)(C) denies rollover treatment and nothing else can characterise the movement. There is no correction procedure for it.

Separate accounts are the one structural planning step still available. Where the beneficiaries have different categories — a spouse and an adult child, say — dividing the account into separate accounts lets each apply their own rule rather than being pulled to the least favourable common denominator.

Scenario 1 — the adult child who must do both

Hema dies in March 2026 at 78, having taken required distributions for several years. Her traditional IRA passes to her son Ravi, aged 47, who is not disabled or chronically ill and is far more than ten years younger than her.

Ravi is a designated beneficiary but not an eligible one, so the ten-year rule applies and the account must be empty by the end of 2036. Because Hema died on or after her required beginning date, Reg. § 1.401(a)(9)-5(d)(1)(i) also requires an annual distribution for every year until then. He must do both. Separately, if Hema had not taken her 2026 distribution before dying, Ravi must take it during 2026, computed on her figures.

Scenario 2 — the retitling that emptied the account

Owen dies in 2026 leaving a traditional IRA of 240,000 dollars to his brother Silas, aged 63. Silas asks his bank to move the money into his own existing IRA, and the bank does it.

IRC § 408(d)(3)(C)(i) denies rollover treatment to any amount received from an inherited account, and clause (ii) defines inherited to mean acquired by reason of another’s death by someone who was not the surviving spouse. The transfer is therefore a distribution of the entire 240,000 dollars, includible in Silas’s gross income for 2026 under § 691(a)(1). It is worth noting what he lost as well as what he owes: because he is not more than ten years younger than Owen, he was an eligible designated beneficiary under § 401(a)(9)(E)(ii)(V) and could have taken life expectancy payments over decades.

Scenario 3 — the spouse with a choice, and a reason to wait

Delia, aged 58, is the sole beneficiary of her husband Amos’s traditional IRA. Amos died in 2026 at 61. Delia expects to need some of the money before she turns 59½.

If she elects to treat the account as her own, Reg. § 1.408-8(c)(3) makes her the owner for all purposes including § 72(t), so a withdrawal at 58 carries the additional tax. If she instead keeps it as a beneficiary account, distributions to her are made by reason of Amos’s death and fall outside § 72(t)(1) by force of § 72(t)(2)(A)(ii). She can take what she needs now and elect to treat the account as her own later — the election is not confined to the year of death.

Ten years is a deadline, not a schedule — except when it is both. Where the owner died on or after the required beginning date, annual distributions run alongside the deadline. Where the owner died before it, the ten-year rule is a deadline only.

“Not more than ten years younger” is a real category and it is often the answer. A sibling, a cousin, an unmarried partner of similar age all qualify under § 401(a)(9)(E)(ii)(V), and the fact pattern will give you the two ages rather than saying so.

30 September is a filter, not a designation date. A person not named as of the date of death cannot become a designated beneficiary by that date; a person named can only be removed.

A Roth IRA owner is always treated as dying before the required beginning date (Reg. § 1.408-8(b)(1)(ii)), so the at-least-as-rapidly rule never applies — but a Roth IRA does have a post-death distribution requirement, which the exemption in § 408A(c)(4) does not touch.

How this has changed

The life expectancy default was replaced by a deadline. Before IRC § 401(a)(9)(H), any designated beneficiary could take distributions over their own life expectancy, and a young beneficiary of a large account could spread it across fifty years or more. That is now confined to the five categories of eligible designated beneficiary, and status is frozen at the date of death. Every worked example built around a beneficiary’s single life expectancy factor needs to be checked against the categories before it is trusted.

Whether annual distributions run inside the ten years was genuinely unsettled, and the regulations resolved it against the taxpayer: where the owner died on or after the required beginning date, Reg. § 1.401(a)(9)-5(d)(1)(i) requires the annual amount for every distribution calendar year, and paragraph (e)(2) then imposes the tenth-anniversary deadline on top. Material written between the statute and the regulations often states the opposite, or states that the question is open. It is not.

Age 21 is now a regulatory rule. Reg. § 1.401(a)(9)-4(e)(3) sets the age of majority at the 21st birthday for this purpose, replacing an approach that looked to state law and to whether the child was still completing a specified course of education.

The regulations were renumbered as well as rewritten. The former question-and-answer format of §§ 1.401(a)(9)-3 through -5 is gone; the beneficiary determination rules that practitioners cite as “A-4 of § 1.401(a)(9)-4” are now § 1.401(a)(9)-4(c). Citations in the old form no longer resolve, which matters here more than elsewhere because so much of this topic lives in the regulations rather than the statute.

Exam focus

Expect the three questions in a single fact pattern, with one of them buried. The buried one is usually whether the decedent had reached the required beginning date, because it decides whether annual distributions accompany the ten-year deadline.

Expect the “not more than ten years younger” category, given as two ages. A beneficiary who looks like an ordinary adult child or sibling may be eligible, and that changes the answer entirely.

Expect the non-spouse rollover bar. Any fact pattern in which a non-spouse beneficiary moves money into their own IRA is a full distribution, and the question is testing whether you say so.

Distinguish the spouse’s two routes. Treating the account as one’s own makes § 72(t) apply; remaining a beneficiary keeps the death exception. Under 59½, that is usually the whole decision.

Check yourself

1. An owner dies at 80 leaving an IRA to a 40-year-old niece. What must she do?

Answer: Both. She is a designated beneficiary but not an eligible one, so the ten-year deadline in Reg. § 1.401(a)(9)-3(c)(3) applies; and because the owner died on or after the required beginning date, Reg. § 1.401(a)(9)-5(d)(1)(i) also requires an annual distribution each year until the account is emptied.

2. An owner dies at 60 naming her estate as beneficiary. What governs?

Answer: The five-year rule. An estate is not an individual and so not a designated beneficiary, and the owner died before the required beginning date, so IRC § 401(a)(9)(B)(ii) requires the entire interest to be distributed by the end of the year containing the fifth anniversary of death.

3. A beneficiary is 8 years younger than the deceased owner. Is she an eligible designated beneficiary?

Answer: Yes, under IRC § 401(a)(9)(E)(ii)(V) — an individual not more than ten years younger than the employee — so she may take life expectancy payments rather than being confined to the ten-year rule.

4. A 55-year-old widow is sole beneficiary of her husband’s IRA and needs money now. What is the consequence of electing to treat the account as her own?

Answer: Reg. § 1.408-8(c)(3) makes her the owner for all purposes including IRC § 72(t), so withdrawals before 59½ carry the additional tax. Remaining a beneficiary keeps the death exception in § 72(t)(2)(A)(ii), and she may make the election later.

5. Does a beneficiary get a stepped-up basis in an inherited traditional IRA?

Answer: No. The account is a right to receive income in respect of a decedent under IRC § 691(a)(1), and § 1014(c) excludes such a right from the basis rules of § 1014. A § 691(c) deduction is available for the federal estate tax attributable to it.

Change log

2026-08-19Initial draft. Sets out the three-question structure of IRC § 401(a)(9)(B) as rewritten by § 401(a)(9)(H), the § 401(a)(9)(E)(ii) categories of eligible designated beneficiary tested at the date of death, the Treas. Reg. § 1.401(a)(9)-4(c) 30 September determination date, the rule that annual distributions and the ten-year outer limit both apply where the owner died on or after the required beginning date, the § 408(d)(3)(C) bar on rolling over an inherited IRA, and the § 691 and § 1014(c) consequences.