An inherited IRA creates a withdrawal-sequencing problem after an account owner dies. Beneficiaries may face different tax situations, so the most tax-efficient strategy for the owner may not be best for heirs. section 9.3.2
For a nonspouse beneficiary such as a child, the main rules described here are:
- Generally, if the original owner dies in 2020 or later, the beneficiary must distribute the entire inherited IRA within 10 years. section 9.3.2
- When required minimum distributions had already begun for the original owner, IRS guidance says distributions must also be taken during years 1 through 9. section 9.3.2
- Inherited Roth IRAs follow the ten-year rule but have no required distributions during years 1 through 9. section 9.3.2
Tax treatment can reverse a normal withdrawal priority. Assets inherited in a taxable account receive a stepped-up cost basis at the owner’s death, potentially making it preferable to spend from an IRA and preserve appreciated taxable assets for heirs. section 9.3.2
Table 9.6 Comparison of strategies with and without RMDs
| Strategy | Number of years money lasts | Years money lasts with RMDs |
| IRA first, then taxable | 40.0 | 40.0 |
| Taxable first, then IRA | 48.7 | 47.3 |
| Fill 12% bracket first | 44.5 | 44.5 |
| Roth conversion | 53.2 | 52.1 |
Compare withdrawal strategies with and without required minimum distributions to see how distribution rules affect portfolio longevity. section 9.3.1
