How Are Inherited Roth IRAs Taxed for Non-Spouses? (w/Examples) + FAQs

This article reflects federal rules and general state rules as of June 2026 and covers tax year 2025 and the 2026 filing season. Tax law changes — confirm current figures before you file.

Quick Answer

Usually $0 in income tax. For tax year 2025, money you pull from an inherited Roth IRA as a non-spouse is normally tax-free, because the original owner already paid tax on it. You must still empty the account within 10 years, and earnings are only tax-free once the Roth has existed for 5 years.

When someone leaves you a Roth IRA and you are not their spouse, the good news lands first: the contributions and converted dollars come out with no income tax, because Roth money was funded with after-tax cash. The harder part is timing — you face a 10-year payout deadline under the SECURE Act, and missing a required withdrawal can trigger a 25% penalty that the IRS now enforces after years of delay.

Most non-spouse heirs will never owe a dime of income tax on this account, yet a Vanguard study found that many beneficiaries cash out inherited retirement accounts within the first year, often draining tax advantages they could have kept for a decade. The rules below show you how to keep that growth working and avoid the penalties that punish the people who do not read the fine print.

• 💰 How non-spouse Roth IRA distributions stay income-tax-free in 2025 and 2026.
• ⏳ How the 10-year rule works, and when you must take yearly withdrawals inside it.
• 🧮 Worked dollar examples showing exactly when earnings are taxable — and when they are not.
• ⚠️ The 25% missed-distribution penalty, how it drops to 10%, and the form that fixes it.
• 🏛️ Whether your state taxes inherited Roth withdrawals, and where it never does.

What an Inherited Roth IRA Actually Is

An inherited Roth IRA is a Roth retirement account you receive because the original owner died and named you as the beneficiary. A Roth IRA is funded with money the owner already paid income tax on, so qualified withdrawals later come out tax-free. When you inherit it as a non-spouse, you do not get to treat it as your own — you must open a separate “inherited” or “beneficiary” Roth IRA and follow special payout rules.

The key word is non-spouse. A surviving husband or wife can roll the account into their own Roth IRA and skip required withdrawals for life. A non-spouse — an adult child, a grandchild, a sibling, a friend, or a trust — cannot do that. The IRS treats non-spouse beneficiaries under a stricter clock, and that difference drives almost every tax question that follows.

Why this matters: people lose money not by owing tax on the principal, which is rare, but by mishandling the deadline and the 5-year earnings rule. The consequence of getting it wrong is a penalty or an avoidable tax bill on the growth. The fix is understanding three moving parts — the 10-year rule, the 5-year holding rule, and the Roth ordering rules — and how they fit together.

The Three Rules That Decide Your Tax

Three separate rules control how an inherited Roth IRA is taxed and timed. They work together, and confusing them is the single biggest source of beneficiary mistakes.

Rule 1: The 10-Year Payout Rule

Under the SECURE Act of 2019, most non-spouse beneficiaries must empty the entire inherited account by December 31 of the 10th year after the owner’s death. If the owner died in 2025, your deadline is December 31, 2035. The old “stretch IRA,” which let heirs spread withdrawals over their own life expectancy, is gone for most people.

The consequence of missing the 10-year deadline is harsh: any money still in the account is treated as a missed required distribution and exposed to a penalty. A common misconception is that the 10-year rule forces yearly withdrawals for everyone — it does not always, which is where Rule 1 connects to a subtler twist explained below. What you should do is mark the December 31 deadline of your 10th year now and plan a withdrawal pace so you are not forced to drain a large balance in one high-tax year.

Rule 2: The 5-Year Earnings Rule

A Roth IRA’s earnings are only tax-free if the account has existed for at least 5 years. For an inherited Roth, the clock you use is the original owner’s clock, not yours. If the owner opened or first funded any Roth IRA at least 5 years before you take the money, all withdrawals — including earnings — are fully tax-free.

If the owner’s Roth was younger than 5 years, the earnings portion can be taxable when withdrawn early. The consequence is a normal income-tax bill on just the growth, never on the contributions. A frequent misconception is that your own decade-old Roth IRA counts toward this clock — it does not, as the IRA experts at irahelp.com explain. What you should do is ask the custodian for the year the deceased first established a Roth IRA, then avoid touching the earnings until that 5-year mark passes.

Rule 3: The Roth Ordering Rules

Roth IRAs use taxpayer-friendly ordering rules, and they carry over to inherited accounts. Money comes out in this order: contributions first, then converted amounts, then earnings last. Because contributions and conversions are always tax- and penalty-free, you can pull most of the balance with zero tax even if the 5-year clock has not finished.

The consequence is that the only dollars ever at risk of tax are the earnings sitting at the bottom of the pile. A misconception is that any early withdrawal from a young inherited Roth is taxable — in reality, you reach the earnings only after exhausting all contributions and conversions. What you should do is track which dollars are contributions, conversions, and earnings, because that order decides whether a withdrawal is tax-free.

Which Situation Applies to You?

The answer changes based on who you are and when the owner died. Find your row, then read the matching section.

• You are an adult child, grandchild, sibling, or friend named directly. You are a “designated beneficiary” on the 10-year rule. This is the main audience for this article.
• You are a minor child of the owner. You are an “eligible designated beneficiary” and can stretch withdrawals until age 21, then the 10-year clock begins.
• You are disabled or chronically ill, or not more than 10 years younger than the owner. You are also an “eligible designated beneficiary” and may stretch over your life expectancy.
• You inherited through a trust or estate. Special rules apply, and you should involve an estate attorney. The 10-year or even 5-year rule may apply depending on the trust’s terms.
• The owner died before 2020. You may still be on the old stretch rules and not the 10-year rule at all.

When You Must Take Yearly Withdrawals (the Tricky Part)

Here is where inherited Roth IRAs behave differently from inherited traditional IRAs. Roth IRA owners are never required to take lifetime required minimum distributions, so the original owner is always treated as having died before their required beginning date. Because of that, non-spouse beneficiaries of a Roth IRA do not owe annual RMDs during the 10-year window.

This is a major break for Roth heirs. The IRS final regulations issued July 2024 created a 25% penalty for many traditional IRA heirs who skip yearly withdrawals starting in 2025, and headlines about a “tax bomb” alarmed everyone. Inherited Roth IRA beneficiaries can mostly ignore that annual requirement — your only hard deadline is emptying the account by the end of year 10.

The consequence of misunderstanding this is over-withdrawing too fast and losing years of tax-free compounding. The smart move for many Roth heirs is to let the account grow tax-free for nearly the full 10 years, then take one large tax-free lump sum near the deadline — but only if the 5-year clock has been met so the earnings are also free.

Worked Examples With Real Dollars

Numbers make this concrete. Each example below uses tax year 2025 and 2026 figures.

Example 1: The Simple, Fully Tax-Free Inheritance

Maria’s father opened his Roth IRA in 2012 and died in 2025, leaving Maria, his 40-year-old daughter, a $300,000 balance. The Roth is 13 years old, so the 5-year rule is satisfied. Maria opens an inherited Roth IRA in 2026.

Maria takes nothing for nine years and lets the account grow to about $480,000. In 2035, she withdraws the entire $480,000. Her income-tax bill is $0, because the account met the 5-year rule and every dollar — contributions and earnings — comes out tax-free. She emptied it before the December 31, 2035 deadline, so there is no penalty.

Example 2: The Young Roth With Taxable Earnings

John, age 50, converted a $100,000 traditional IRA into his first-ever Roth IRA in 2024, then added $16,000 of contributions, and the account grew by $20,000. John dies in late 2025, leaving the $136,000 account to his friend Maggie, as the irahelp.com case study describes.

What Maggie Withdraws	Tax Result
The $16,000 of contributions and $100,000 conversion	Tax-free and penalty-free immediately, under Roth ordering rules
The $20,000 of earnings before January 1, 2029	Taxable as ordinary income, because John’s 5-year clock ends January 1, 2029
The $20,000 of earnings on or after January 1, 2029	Tax-free, once the 5-year holding period is met

Maggie’s own 10-year-old Roth IRA does not help — she must use John’s clock. If she is patient and waits until 2029, even the $20,000 of growth comes out tax-free.

Example 3: The Missed Deadline Penalty

David inherits a $200,000 Roth IRA from his uncle who died in 2025. David forgets the account and takes nothing. On January 1, 2036, the account is still sitting there with $250,000, past the December 31, 2035 deadline.

The entire $250,000 is now a missed required distribution. The penalty is 25% of the amount that should have come out, or about $62,500, under the missed-distribution excise tax rules. If David catches the error and corrects it quickly, the penalty can drop to 10%. He reports and calculates this on Form 5329.

The Penalty Rules in Plain English

The penalty for failing to take a required distribution is an excise tax. For 2025, SECURE 2.0 cut this penalty from the old 50% down to 25%. If you fix the shortfall within a two-year correction window, it falls further to 10%.

The consequence of ignoring a missed distribution is paying that excise tax on top of losing the tax-free status of money you should have managed. A common misconception is that the penalty is on the whole account every year — it applies to the amount that should have been distributed and was not. What you should do if you miss a distribution is take the money out promptly, file Form 5329, and attach a short letter requesting a waiver for reasonable cause, which the IRS often grants.

Federal vs. State Taxes

Federal law sets the baseline: qualified inherited Roth withdrawals are free of federal income tax. States usually follow this, but you should never assume.

Tax Question	The Answer
Does federal tax a qualified inherited Roth withdrawal?	No. Contributions and qualified earnings are federally tax-free in 2025 and 2026.
Do most income-tax states follow federal treatment?	Generally yes — most states mirror the federal exclusion for qualified Roth distributions.
What about no-income-tax states?	States like Florida, Texas, and seven others have no income tax, so there is nothing to tax.

A handful of states have their own quirks for retirement income and early earnings, so confirm with your state’s department of revenue before you file. Inheritance tax is separate from income tax — a few states like Pennsylvania and Nebraska levy state inheritance taxes that can touch inherited IRAs depending on your relationship to the deceased.

How to Report It on Your Tax Return

When you take a withdrawal, the custodian sends you a Form 1099-R showing the distribution and a code marking it as a death distribution. You report the gross amount on your Form 1040, then use Form 8606 to show how much, if any, is taxable.

For a fully qualified inherited Roth, Form 8606 confirms the taxable amount is zero. If you withdrew earnings from a Roth that had not yet met the 5-year rule, Form 8606 calculates the taxable earnings portion. If you missed a required distribution, you add Form 5329 to figure and, if needed, request a waiver of the penalty.

The deadline to report is your normal tax-filing deadline, typically April 15, 2026 for tax year 2025. Missing the reporting does not change the tax-free nature of qualified withdrawals, but it can trigger IRS notices, so file the forms even when nothing is taxable.

Deadlines, Timing, and Costs

Timing drives this entire topic, so keep these dates in view. The headline deadline is December 31 of the 10th year after the owner’s death to fully empty the account.

• Open the inherited Roth IRA: ideally within the year after death, retitled correctly in the deceased’s name “for the benefit of” you.
• Tax-filing deadline: April 15, 2026 for any 2025 withdrawals.
• DIY cost: essentially free if you use tax software and the account is fully qualified.
• Professional cost: a CPA or tax attorney typically charges a few hundred to a couple thousand dollars, worth it for trusts, young Roths, or missed-distribution cleanup.

Mistakes to Avoid

Each error below carries a real cost.

1. Rolling the inherited Roth into your own Roth IRA. Only spouses may do this; a non-spouse who tries it creates a fully taxable distribution of the entire balance.
2. Using your own Roth’s age for the 5-year clock. You must use the deceased owner’s clock, and guessing wrong can make earnings unexpectedly taxable.
3. Missing the 10-year deadline. Leftover money becomes a missed distribution exposed to the 25% excise tax.
4. Withdrawing earnings from a young Roth too early. You owe ordinary income tax on growth you could have kept tax-free by waiting.
5. Cashing out the whole account in year one. You surrender up to a decade of tax-free compounding for no tax benefit.
6. Forgetting to file Form 8606 or Form 5329. This invites IRS notices and forfeits your chance to request a penalty waiver.
7. Failing to retitle the account properly. An incorrectly titled account can be treated as a taxable lump-sum distribution by the custodian.
8. Assuming your state automatically follows federal rules. A few states tax retirement income differently, and inheritance tax is a separate issue.

Do’s and Don’ts

Do’s

• Do confirm the owner’s first Roth year, because it sets whether earnings are tax-free.
• Do let the account grow when it is already qualified, since the growth stays tax-free.
• Do mark the 10-year deadline so leftover money never triggers a penalty.
• Do keep records of contributions, conversions, and earnings for ordering-rule math.
• Do consult a pro for trusts, because trust beneficiary rules are complex and costly to get wrong.

Don’ts

• Don’t roll it into your own IRA as a non-spouse, since that creates an immediate taxable event.
• Don’t touch earnings early on a young Roth, because you would owe tax you could avoid.
• Don’t ignore the December 31 deadline, as the excise tax is steep.
• Don’t assume yearly RMDs apply, since Roth heirs usually owe none inside the 10 years.
• Don’t skip the tax forms even when nothing is taxable, to avoid IRS letters.

Pros and Cons of an Inherited Roth IRA

Pros

• Tax-free withdrawals of contributions and qualified earnings, because the owner prepaid the tax.
• Up to 10 years of tax-free growth, which can sharply increase the inheritance.
• No annual RMDs for most non-spouse Roth heirs, giving full timing flexibility.
• Taxpayer-friendly ordering rules that let you access most of the balance tax-free anytime.
• No income-bracket worry, since tax-free withdrawals do not inflate your taxable income.

Cons

• The 10-year deadline forces a full payout and ends the long-term shelter.
• The 5-year clock can tax earnings if the owner’s Roth was new.
• A 25% penalty punishes missed deadlines, even though tax is rare.
• No spousal rollover option for non-spouses, removing the most flexible choice.
• Possible state inheritance tax in a few states, separate from income tax.

What to Do Next

Take these steps in order to protect your inheritance.

1. Ask the custodian for the year the deceased first opened any Roth IRA, to confirm the 5-year clock.
2. Open a properly titled inherited Roth IRA in the deceased’s name for your benefit, not your own Roth.
3. Calculate your December 31 deadline — the 10th year after the year of death.
4. Plan your withdrawal pace so earnings are only taken after the 5-year mark, if the account is young.
5. Gather records of contributions, conversions, and earnings for ordering-rule math.
6. File Form 8606 and, if needed, Form 5329 with your return.
7. Call a CPA or estate attorney if a trust is involved, the Roth is young, or you missed a distribution.

This article is educational and is not a substitute for advice from a licensed CPA, tax attorney, or estate attorney for your specific situation. Inherited accounts that flow through trusts, involve young Roths with taxable earnings, or carry missed-distribution penalties are exactly the cases where professional help pays for itself.

FAQs

Do I owe income tax on an inherited Roth IRA as a non-spouse?

No, in most cases. For tax year 2025, qualified withdrawals of contributions and earnings come out federally tax-free, because the original owner already paid tax on the money. Earnings are taxable only if the account is under 5 years old.

Do I have to take required minimum distributions every year?

No, usually. Because Roth owners never owe lifetime RMDs, non-spouse Roth heirs are not required to take annual withdrawals inside the 10-year window. Your only hard deadline is emptying the account by year 10.

What is the deadline to empty an inherited Roth IRA?

December 31 of the 10th year after the owner’s death. If the owner died in 2025, you must withdraw everything by December 31, 2035. Leftover money becomes a missed distribution exposed to a penalty.

Does my own Roth IRA’s age count for the 5-year rule?

No. You must use the deceased owner’s Roth holding period, not your own. Even a decades-old personal Roth does not help the inherited account’s earnings become tax-free.

What happens if I miss the 10-year deadline?

A 25% excise tax applies to the amount that should have been distributed for 2025. If you correct the shortfall within the two-year window, the penalty drops to 10%, reported on Form 5329.

Can I roll an inherited Roth IRA into my own Roth IRA?

No, not as a non-spouse. Only a surviving spouse may do that. A non-spouse who attempts it creates a fully taxable distribution of the entire account balance.

Are the earnings ever taxable?

Yes, but rarely. Earnings are taxable as ordinary income only if you withdraw them before the owner’s Roth has existed 5 years. Contributions and conversions are always tax-free under Roth ordering rules.

Which form reports an inherited Roth withdrawal?

Form 8606, along with the Form 1099-R from your custodian. Form 8606 shows how much, if any, of the withdrawal is taxable. Most qualified inherited Roth withdrawals show zero taxable amount.

Do all states treat inherited Roth withdrawals as tax-free?

Most do, but not all. Most income-tax states mirror the federal exclusion, and nine states have no income tax at all. A few states also levy a separate inheritance tax on what you receive.

Should I withdraw everything at once?

Usually no. Draining the account early forfeits years of tax-free growth with no tax benefit, since qualified withdrawals are already tax-free. Spreading or delaying withdrawals inside the 10 years keeps more money compounding.

Are eligible designated beneficiaries treated differently?

Yes. Minor children, disabled or chronically ill heirs, and those not more than 10 years younger than the owner can stretch withdrawals over a longer period instead of using the 10-year rule.

Does a 10% early-withdrawal penalty apply to inherited Roth IRAs?

No. Distributions taken because of the owner’s death are exempt from the 10% early-withdrawal penalty, regardless of your age, though taxable earnings from a young Roth still owe ordinary income tax.

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