Are Inherited IRA Withdrawals Subject to the 10% Penalty? (w/Examples) + FAQs

This article reflects federal rules as of June 2026 and covers tax year 2025 and the 2026 filing season. It also notes general state-tax treatment, which varies by state. Tax law changes — confirm current figures with IRS.gov before you file.

Quick Answer

No. Inherited IRA withdrawals are not subject to the 10% early-withdrawal penalty, even if you are under age 59½, because the “death of the owner” exception under Section 72(t) applies. A different penalty — 25% for a missed required distribution — can still hit you.

You just inherited a retirement account, and the first fear is usually the 10% penalty that punishes people who raid their own IRA too early. That penalty almost never touches an inherited IRA, but the relief comes with a sharp catch: the money is still taxed as ordinary income, and a separate, harsher penalty now applies if you skip a required withdrawal. According to a 2025 CNBC report, heirs who miss a required distribution in 2025 can face a 25% penalty on the amount they should have taken.

The clock matters more than ever. Most non-spouse heirs must now empty the account within 10 years, and starting in 2025 many must also take a yearly required minimum distribution (RMD) during that window — making the right mistake to avoid the missed-RMD penalty, not the early-withdrawal one.

• 💡 The exact reason the 10% early penalty does not apply to inherited IRA withdrawals.
• ⚠️ The new 25% penalty (reducible to 10%) that can apply, and how to fix a missed RMD.
• 🧮 Worked dollar examples showing the real tax bill on a withdrawal.
• 🧭 A decision aid sorting spouse, non-spouse, minor, and disabled heirs.
• 📝 The forms, deadlines, and next steps to stay penalty-free.

The 10% Penalty vs. the Inherited IRA: Why They Don’t Mix

The 10% penalty most people fear is the early-withdrawal penalty under Internal Revenue Code Section 72(t). It is an extra 10% tax on top of regular income tax, designed to stop people from spending retirement money before age 59½. It applies to your own IRA, not to most inherited accounts.

The very first exception listed in the statute is death of the account owner. As Lord Abbett explains, distributions from an inherited IRA are never subject to the 10% penalty — and this holds true even if both the deceased owner and the beneficiary are under age 59½. So a 40-year-old who inherits a parent’s IRA can withdraw the entire balance the next day with zero early-withdrawal penalty.

That does not mean the money is free. A traditional inherited IRA withdrawal is still taxed as ordinary income in the year you take it. The penalty exemption and the income tax are two separate things, and confusing them is the most expensive mistake heirs make. Avoiding a 10% penalty feels like a win until a $200,000 lump-sum withdrawal pushes you into the top tax bracket.

There is one trap that re-creates the penalty: a surviving spouse who moves the money into their own IRA. As Spencer Fane notes, once a spouse rolls the funds into their own account, it loses its “inherited” status, so withdrawals before age 59½ become subject to the 10% penalty again unless another exception applies. The consequence is real: a 52-year-old widow who rolls over and then withdraws $30,000 owes a $3,000 penalty she could have avoided by keeping the account titled as inherited.

What you should do: if you are under 59½ and may need the cash, keep the account titled as an inherited IRA rather than rolling it into your own. You preserve penalty-free access and can always roll it over later once you reach 59½.

The Penalty That Does Apply: Missed RMDs Under the 10-Year Rule

Here is the penalty heirs actually need to fear. The SECURE Act ended the old “stretch IRA” for most non-spouse beneficiaries who inherited after 2019. Instead of spreading withdrawals over a lifetime, most must empty the account within 10 years of the owner’s death.

In its final 2024 regulations, the IRS confirmed that if the original owner had already started their own RMDs, the heir must also take a yearly RMD in years 1 through 9 — not just empty the account by year 10. As CNBC reported, the IRS waived this annual requirement for 2021 through 2024, but enforcement begins in 2025.

Miss that yearly RMD and the penalty is 25% of the amount you should have withdrawn — far steeper than the 10% early penalty. The good news, per the same guidance, is that the IRS will reduce it to 10% if you withdraw the shortfall and file Form 5329 within the two-year correction window.

A common misconception is that the 10-year rule means “wait until year 10, then take it all.” For accounts where the owner had started RMDs, that is wrong and triggers yearly penalties. What you should do: confirm whether the deceased had reached their RMD age, then set up an automatic annual withdrawal so you never miss one.

Which Situation Applies to You?

The answer depends entirely on who you are relative to the person who died. Find your category below, then read the matching detail.

• Surviving spouse — the most flexibility; can roll over, treat as own, or stay an inherited-IRA beneficiary.
• Non-spouse “non-eligible” beneficiary (most adult children) — the 10-year rule applies, with possible annual RMDs.
• Eligible designated beneficiary (minor child of the owner, disabled or chronically ill person, someone not more than 10 years younger) — can often still stretch withdrawals over life expectancy.
• Minor child of the owner — uses life expectancy until age 21, then the 10-year clock starts.
• Non-person beneficiary (estate or non-qualifying trust) — faces the shortest payout windows.

In every one of these cases, the 10% early-withdrawal penalty does not apply to inherited IRA distributions. The differences are about timing rules and RMD penalties, not the early penalty.

Surviving Spouse

A surviving spouse has the most options of any heir. You can roll the IRA into your own, “treat it as your own,” or keep it as an inherited IRA. As Fidelity outlines, each choice changes when RMDs start and whether the 10% penalty can return.

The key rule: keeping the account titled as inherited preserves penalty-free withdrawals before 59½. Per the Journal of Accountancy, once a spouse rolls the balance into their own IRA, later withdrawals before 59½ face the 10% penalty unless another exception applies. The widow’s exception is permanent and survives even remarriage, but only while the account stays inherited.

What you should do: if you are over 59½, rolling into your own IRA usually delays RMDs and simplifies things. If you are under 59½ and may need the funds, stay an inherited beneficiary first.

Non-Spouse “Non-Eligible” Beneficiary

This is the typical adult child who inherited after 2019. You face the 10-year rule and, if the parent had started RMDs, annual RMDs in years 1–9 starting in 2025. No early-withdrawal penalty ever applies, but the missed-RMD penalty does.

The planning challenge is taxes, not penalties. Because the account must empty within 10 years, large lump sums can spike your income. What you should do: spread withdrawals across the 10 years to smooth your tax bracket, and confirm your year-1 RMD obligation immediately.

Eligible Designated Beneficiaries

A smaller group — a disabled or chronically ill heir, or someone not more than 10 years younger than the deceased — can still “stretch” distributions over their own life expectancy, escaping the 10-year squeeze. As Edward Jones explains, these beneficiaries take smaller annual RMDs based on IRS life-expectancy tables.

Still no 10% early penalty applies. The risk is again the missed-RMD penalty. What you should do: get your life-expectancy factor from the IRS Single Life Table and automate the annual withdrawal.

Worked Numeric Examples

Numbers make this concrete. These examples use tax year 2025 federal brackets for a single filer and assume a traditional (pre-tax) inherited IRA.

Example 1 — Lump sum, under 59½. Maria, age 41 and single, inherits a $120,000 traditional IRA from her father and withdraws it all in 2025. She owes zero 10% early penalty thanks to the death exception. But the $120,000 stacks on her $70,000 salary, pushing part of her income into the 24% bracket. Her added federal tax on the withdrawal is roughly $30,000 — all income tax, no penalty.

Example 2 — Spreading it out. If Maria instead withdraws $24,000 per year over 10 years, much of each withdrawal stays in the 12% and 22% brackets. Her total tax could fall by several thousand dollars versus the lump sum, even though both avoid the 10% penalty entirely. The lesson: the penalty was never the danger — the bracket was.

Example 3 — Missed RMD. James, 55, inherits a $300,000 IRA from his mother, who had already started her RMDs. His required 2025 RMD is about $11,300. He forgets it. The penalty is 25% × $11,300 = $2,825. He catches it in early 2026, withdraws the $11,300, and files Form 5329; the penalty drops to 10% × $11,300 = $1,130.

Three Common Scenarios

Each table below shows a common heir situation and the penalty result.

Scenario A: Adult Child Withdraws a Lump Sum at Age 45

What the heir does	What happens
Withdraws full inherited traditional IRA balance	No 10% early penalty (death exception); full amount taxed as ordinary income that year
Lets the lump sum stack on salary	May jump into a higher bracket, raising the effective tax rate on the withdrawal
Skips spreading over the 10-year window	Loses the chance to smooth income across lower brackets

Scenario B: Surviving Spouse, Age 50, Rolls Over Then Withdraws

What the spouse does	What happens
Rolls inherited IRA into own IRA	Account loses inherited status
Withdraws $25,000 before age 59½	10% penalty now applies — $2,500 — plus income tax
Keeps it as an inherited IRA instead	No 10% penalty on the same withdrawal

Scenario C: Non-Spouse Heir Misses the 2025 Annual RMD

What the heir does	What happens
Fails to take the required 2025 RMD	25% penalty on the shortfall amount
Withdraws the shortfall and files Form 5329 within two years	Penalty reduced to 10%
Attaches a reasonable-cause explanation letter	IRS may waive the penalty entirely

Inherited Roth IRAs: A Special, Better Case

Inherited Roth IRAs follow the same penalty logic but with a tax twist. Like traditional inherited IRAs, no 10% early-withdrawal penalty ever applies. The difference is that qualified Roth withdrawals are tax-free, not just penalty-free.

Withdrawals are fully tax-free if the original owner had held any Roth IRA for at least five years before death. As Vanguard notes, the five-year holding period must be met for distributions to be both tax- and penalty-free. If the five years are not yet met, only the earnings portion may be taxable — never penalized.

One catch surprises Roth heirs: a non-spouse beneficiary of a Roth IRA still must empty the account within 10 years. The 10-year rule applies regardless of the Roth’s tax-free status. The good news is that inherited Roth IRAs generally have no annual RMD during the 10 years, so the missed-RMD penalty is far less of a threat.

What you should do: because the money grows tax-free, consider waiting until year 10 to withdraw an inherited Roth, maximizing tax-free growth before you must empty it.

Federal vs. State Tax: Two Different Questions

Everything above is federal law, and the 10% penalty is a federal rule. The federal answer is the same in all 50 states: no early-withdrawal penalty on inherited IRA distributions, but ordinary income tax on traditional-IRA withdrawals.

States diverge on the income tax, not the penalty. Some states impose their own additional tax on early distributions, but this generally does not apply to inherited IRAs for the same death-exception reason. Where states truly differ is whether they tax the withdrawal as income at all.

State category	How an inherited traditional IRA withdrawal is taxed
No-income-tax states (e.g., Florida, Texas, Nevada, Washington)	No state income tax on the withdrawal
States that exempt or partially exempt retirement income (e.g., Illinois, Pennsylvania)	Withdrawal may be fully or partly state-tax-free
High-tax states (e.g., California, New York, New Jersey)	Withdrawal taxed as ordinary state income on top of federal tax

State rules change often and conformity is not automatic. What you should do: check your own state’s department of revenue page before assuming the withdrawal is or is not taxed at the state level.

Mistakes to Avoid

• Confusing the 10% early penalty with income tax. The withdrawal is penalty-free but still taxable; the surprise is a large April tax bill.
• A spouse rolling the IRA into their own before 59½. This restores the 10% penalty on later early withdrawals.
• Assuming “10-year rule” means wait until year 10. If annual RMDs are required, skipping them triggers the 25% penalty each year.
• Missing the 2025 annual RMD. Enforcement started in 2025, and the penalty is 25% of the missed amount.
• Taking the whole balance in one year. A lump sum can push you into a much higher bracket, costing thousands in extra income tax.
• Forgetting to file Form 5329 after a missed RMD. Without it, you cannot get the penalty reduced to 10% or waived.
• Ignoring the inherited Roth 10-year deadline. Even tax-free Roth accounts must be emptied within 10 years for non-spouse heirs.
• Failing to retitle the account properly. A non-spouse cannot roll an inherited IRA into their own IRA; doing so is treated as a fully taxable distribution.

Do’s and Don’ts

Do’s

• Do keep the account titled as inherited if you are an under-59½ spouse who may need the cash, because it preserves penalty-free access.
• Do confirm whether the deceased had started RMDs, since that decides if you owe annual RMDs in years 1–9.
• Do automate your annual RMD, so the 25% missed-RMD penalty never has a chance to apply.
• Do spread traditional-IRA withdrawals across the 10 years, because smoothing income lowers your overall tax rate.
• Do file Form 5329 promptly if you miss an RMD, since timely correction cuts the penalty from 25% to 10%.

Don’ts

• Don’t roll an inherited IRA into your own IRA as a non-spouse, because it becomes immediately taxable in full.
• Don’t assume the withdrawal is tax-free just because there is no penalty — traditional IRA money is ordinary income.
• Don’t wait until year 10 if annual RMDs apply, because each skipped year is its own 25% penalty.
• Don’t ignore your state’s rules, since some states tax the withdrawal and others do not.
• Don’t guess on a trust or estate beneficiary, because non-person heirs face shorter, stricter payout windows.

Pros and Cons of Withdrawing from an Inherited IRA Early

Pros

• No 10% early penalty, so you can access the money at any age without that surcharge.
• Immediate liquidity for needs like a home, debt, or emergencies.
• Roth withdrawals can be tax-free, giving penalty-free and tax-free cash if the five-year rule is met.
• Flexibility to time withdrawals across the 10-year window to manage your tax bracket.
• Satisfies RMD obligations when timed correctly, avoiding the 25% penalty.

Cons

• Ordinary income tax applies to traditional-IRA withdrawals, which can be substantial.
• Lump sums can spike your bracket, raising the effective tax rate sharply.
• Lost tax-deferred growth when you withdraw earlier than required.
• Possible state income tax on top of the federal bill in high-tax states.
• Higher income can raise other costs, such as Medicare premiums or reduced credits.

Deadlines, Costs, and Timing

The withdrawal itself takes only days once the account is retitled with the custodian. Retitling typically takes one to three weeks. The annual RMD deadline is December 31 each year, and the full 10-year emptying deadline is December 31 of the tenth year after the owner’s death.

Cost ranges widely. A simple DIY withdrawal costs nothing beyond the resulting tax. A missed-RMD correction filing is also free to do yourself, though many heirs pay a CPA $200 to $600 to prepare Form 5329 and the reasonable-cause letter. A complex estate with a trust beneficiary may warrant an estate attorney, often $1,500 and up.

This article is educational and is not a substitute for advice from a licensed professional for your specific situation. If you inherited a large account, a trust is the beneficiary, the deceased had already started RMDs, or you face multiple missed years, talk to a CPA or estate attorney — they will confirm your beneficiary class, calculate the correct RMD, and prepare any correction filings.

What to Do Next

1. Confirm your beneficiary type — spouse, non-spouse non-eligible, eligible designated, minor, or non-person — because it sets every rule that follows.
2. Find out if the deceased had started RMDs, which determines whether you owe annual RMDs during the 10-year window.
3. Calculate and take your 2025 RMD if required, then set up automatic annual withdrawals for future years.
4. If you already missed an RMD, withdraw the shortfall now and file Form 5329 with a brief explanation letter to cut the penalty to 10% or request a waiver.
5. Plan your withdrawal pacing across the 10 years to control your tax bracket, and check your state’s income-tax treatment.

Frequently Asked Questions

Do I pay the 10% penalty on an inherited IRA if I am under 59½?

No. The death-of-the-owner exception under Section 72(t) means inherited IRA withdrawals carry no 10% early-withdrawal penalty at any age. You still owe ordinary income tax on a traditional inherited IRA withdrawal in the year you take it.

Are inherited IRA withdrawals taxable?

Yes, for traditional IRAs. Withdrawals are taxed as ordinary income in the year received. Qualified inherited Roth IRA withdrawals are tax-free if the original owner held the Roth for at least five years before death.

What is the penalty for missing an inherited IRA RMD in 2025?

25% of the amount you failed to withdraw. It can be reduced to 10% if you take the shortfall and file Form 5329 within two years, and the IRS may waive it entirely for reasonable cause.

Does the 10-year rule require yearly withdrawals?

It depends. If the original owner had already started RMDs, you must take annual RMDs in years 1–9 starting in 2025, then empty the account by year 10. If not, you only must empty it by year 10.

Can a surviving spouse avoid the 10% penalty?

Yes. Keeping the account titled as an inherited IRA lets a spouse withdraw penalty-free at any age. Rolling it into their own IRA before age 59½ restores the 10% penalty on later early withdrawals.

Can I roll an inherited IRA into my own IRA?

Only if you are the spouse. Non-spouse heirs cannot do this; attempting it is treated as a full, taxable distribution. Spouses can roll over, but doing so before 59½ can re-trigger the 10% penalty.

Do inherited Roth IRAs have RMDs?

No annual RMDs for non-spouse heirs. But the account must still be fully emptied within 10 years. Qualified withdrawals are tax-free if the five-year holding period was met before the owner’s death.

Which form fixes a missed inherited IRA RMD?

Form 5329. File it for each year you missed, report the shortfall, and attach a short reasonable-cause letter. Timely filing reduces the penalty from 25% to 10% or can earn a full waiver.

Do all states tax inherited IRA withdrawals?

No. States with no income tax, such as Florida and Texas, do not tax them. High-tax states like California and New York tax the withdrawal as ordinary income, so check your own state’s department of revenue.

What happens if a minor inherits an IRA?

They use life expectancy until age 21. A minor child of the owner takes annual RMDs based on life expectancy, then the 10-year rule begins at age 21, requiring the account to empty by age 31.

Is the lump-sum withdrawal ever the best choice?

Sometimes, for inherited Roth IRAs or small balances. A Roth lump sum is tax-free, and a small traditional balance may not move your bracket. For large traditional accounts, spreading withdrawals usually saves more tax.

Does the early-withdrawal penalty apply if I inherit a 401(k)?

No. The same death exception applies to inherited workplace retirement accounts. Withdrawals avoid the 10% penalty, though traditional-account distributions remain taxable as ordinary income.