A Non-Spousal Inherited IRA is an IRA you receive from someone who was not your spouse. Because you’re not a spouse, you cannot treat the assets as your own, combine them with your IRA, or add new contributions. Instead, you open a beneficiary account titled in the decedent’s name for your benefit, follow strict distribution rules, and decide how to manage taxes and investment risk within a limited window.

Two questions drive most decisions: How fast must I withdraw the money? and How do I avoid overpaying taxes or outliving the funds? This guide explains the 10-year rule, exceptions, and practical strategies to align withdrawals with your goals. If you’re new to the basics, start with how an inherited IRA works and then come back here to build your action plan.

Estimate Lifetime Income From Your Inherited IRA

Run a quick scenario, then compare options for guaranteed income from annuities.

Who Must Use the 10-Year Rule?

Under current law, most non-spouse beneficiaries must fully distribute the inherited IRA by December 31 of the 10th year after the original owner’s death. Whether you must also take annual withdrawals during years 1–9 depends on whether the original owner had already reached their required beginning date for RMDs at death. In practice, that means:

• Owner died before RMDs began: You may wait and withdraw at any cadence as long as the account is emptied by the end of year 10.
• Owner died after RMDs began: You generally take annual beneficiary RMDs for years 1–9 and still empty the account by the end of year 10.

There are limited exceptions (for example, certain disabled or chronically ill beneficiaries or minors until majority). If you think you qualify for an exception, map out your options before taking the first distribution.

Tax Treatment: Traditional vs. Roth Inherited IRAs

• Traditional inherited IRA: Distributions are taxable as ordinary income in the year withdrawn. There’s no 10% early withdrawal penalty for beneficiaries, but taxes still apply.
• Roth inherited IRA: If the original Roth satisfied the 5-year rule before death, withdrawals of earnings are typically tax-free. If not, part of the distribution may be taxable until the 5-year clock is met.

Your withdrawal pattern affects your total lifetime tax cost. Spreading income across several years often keeps you in a lower bracket, while lump-sum withdrawals can spike taxes in a single year and create knock-on effects (e.g., Medicare surcharges). Use our annuity payout calculator alongside a tax-aware distribution plan.

Smart Withdrawal Strategies for Beneficiaries

1. Bracket-aware withdrawals: Coordinate annual distributions with other income so you don’t unnecessarily jump tax brackets.
2. Front-load or back-load intentionally: Taking more in early years can reduce sequence risk in markets; taking more later might fit if you expect lower future income. The key is not missing the final year-10 deadline.
3. Create a reliable income floor: If you prefer predictable income, compare an inherited-IRA-compatible annuity. See our overview of how to transfer an IRA to an annuity for a step-by-step framework.
4. Align with other benefits: Time withdrawals around Social Security start dates or healthcare subsidies to avoid unpleasant surprises.
5. Preserve optionality: Products with penalty-free withdrawal features can help adapt if your needs change. Review annuity free withdrawal rules before committing.

When an Annuity Can Make Sense for Inherited IRA Money

Many beneficiaries want two things: to meet the 10-year payout rule and to turn part of the account into dependable income. Annuities compatible with inherited IRAs can help by offering:

• Structured lifetime income: Convert a portion into a guaranteed paycheck you won’t outlive, while keeping the rest flexible for the 10-year requirement.
• Principal protection choices: Fixed and fixed indexed designs eliminate market-loss risk, which can be helpful when timelines are short.
• Flexible access: Many contracts provide penalty-free withdrawals for RMDs and emergencies; always check the fine print against your distribution schedule.
• Legacy planning: Properly set beneficiaries and understand how annuity beneficiary death benefits work so your heirs receive what you intend.

Comparing multiple carriers and riders is essential; rates and features vary widely. Start with today’s current annuity rates to see what’s competitive now.

How to Set Up the Beneficiary IRA and Avoid Pitfalls

1. Open proper title: Create an inherited (beneficiary) IRA titled “Decedent Name, deceased, FBO Your Name.” This preserves tax deferral and clarifies your role.
2. Use trustee-to-trustee transfers: Move assets directly between custodians to avoid accidental distribution and taxation. If you’re evaluating annuities, that’s a direct transfer—not a check to you. For background, review what is a direct rollover and how to execute it cleanly.
3. Pick an investment stance: Time horizon matters. With a 10-year cap, aggressive allocations can backfire late in the window; conservative allocations can undershoot inflation. Blend as needed.
4. Calendar your deadlines: Put reminders for annual RMDs (if required) and a hard stop on December 31 of year 10. Missing dates can be costly.
5. Coordinate with other accounts: Beneficiary IRA distributions don’t count toward your own IRA’s RMDs. Track them separately.

Inherited IRA Options at a Glance

Related Pages

• What Is a QLAC?
• Understanding a Non-Qualified Annuity
• Annuity With Inflation Protection
• How the Annuity Exclusion Ratio Works