What Happens If You Don’t Empty an Inherited IRA in 10 Years? (w/Examples) + FAQs

This article reflects federal rules and general state treatment as of June 2026 and covers tax years 2025 and 2026. Tax law changes often — confirm current figures with the IRS or a licensed professional before you act. This guide is educational and is not a substitute for personal advice from a CPA, tax attorney, or estate attorney for your specific situation.

Quick Answer

The IRS imposes a 25% excise tax on the money you should have withdrawn but didn’t — applied to the amount still sitting in the account after the 10-year deadline (tax year 2025). The penalty drops to 10% if you fix the shortfall within a correction window, and you can request a full waiver for reasonable cause using Form 5329.

If you inherited an IRA and the 10-year clock runs out with money still inside, the IRS treats that leftover balance as a missed required distribution, and a penalty tax stacks on top of the regular income tax you already owe. The danger is real because the SECURE Act of 2019 erased the old “stretch IRA” for most heirs and replaced it with a hard 10-year finish line that catches people by surprise.

The stakes are larger than most heirs expect, and the timing is unforgiving. More than $124 trillion is projected to transfer to heirs and charities through 2048, much of it inside retirement accounts, so millions of beneficiaries will face this exact deadline. Miss it, and the cost is not theoretical — it is a check to the U.S. Treasury.

💸 How the 25% excise tax is calculated on the leftover balance, with the exact math
⏳ The difference between missing a yearly withdrawal and missing the final 10-year emptying deadline
🛟 How to slash a 25% penalty to 10% — or wipe it out entirely — using Form 5329
👥 Which beneficiaries escape the 10-year rule completely (spouses, minor children, disabled heirs, and more)
🧾 The state tax surprise that can add thousands on top of the federal bill

What the 10-Year Rule Actually Means

The 10-year rule says a covered beneficiary must withdraw every dollar from an inherited IRA by December 31 of the tenth year after the original owner’s death. The IRS finalized these rules in July 2024, ending years of confusion, and full enforcement began in tax year 2025.

The clock starts the year after death, not the date you open the account. So if the owner died in 2023, your deadline is December 31, 2033 — a full calendar count, with no extensions for delays in settling the estate.

There are actually two separate obligations hiding inside this rule, and people constantly confuse them. The first is the annual required minimum distribution (RMD) you may owe in years 1 through 9. The second is the final sweep that empties the account by year 10. You can satisfy one and still blow the other.

The Annual RMD Trap (Years 1–9)

Whether you owe a withdrawal each year depends on one fact: did the original owner die before or on/after their required beginning date (the first date they had to start taking their own RMDs, generally April 1 after they turned 73)? If the owner had already started RMDs, you must take an annual RMD in years 1 through 9 and empty the account by year 10.

If the owner died before their required beginning date, you skip the annual withdrawals entirely and only face the year-10 emptying deadline. This is the “no annual RMD” version of the 10-year rule, confirmed in the IRS final regulations.

The consequence of missing a year-1-through-9 RMD is its own penalty, separate from the year-10 failure. The IRS waived this penalty for 2021 through 2024 while it finalized the rules, but that grace period ended, and missed annual RMDs starting in tax year 2025 are now penalized.

The Final Emptying Deadline (Year 10)

Even a beneficiary with no annual RMD obligation must still drain the account by the end of year 10. This is the deadline the article title asks about, and it is absolute. There is no “stretch,” no rolling the balance into your own IRA, and no fresh 10-year period.

Whatever sits in the account on January 1 of year 11 is treated as an RMD you failed to take. The IRS then applies the excise tax to that entire leftover sum, which is why a procrastinator can owe a penalty on a six-figure balance in a single shot.

The fix is to take the money out on time, even if the tax sting of a large withdrawal hurts. A planned distribution taxed as income always beats an unplanned distribution taxed as income plus a 25% penalty.

The Penalty: What “Failure” Actually Costs

When you don’t empty an inherited IRA in 10 years, the leftover balance becomes a missed RMD, and the IRS charges an excise tax under Internal Revenue Code Section 4974. For tax year 2025, that base penalty is 25% of the amount you failed to withdraw.

Before the SECURE 2.0 Act of 2022, this penalty was a brutal 50%. SECURE 2.0 cut it to 25%, and added a reduced 10% rate if you correct the shortfall promptly. That is a meaningful break, but 25% of a large IRA is still a five-figure mistake for many families.

Here is the part people miss: the penalty is on top of ordinary income tax. The leftover balance from a traditional inherited IRA is also taxable income in the year you finally withdraw it, so you can face the income tax and the excise tax on the same dollars.

How the 25% Drops to 10%

SECURE 2.0 lets you cut the penalty to 10% if you withdraw the missed amount and file the paperwork during the “correction window.” That window generally runs to the end of the second tax year after the year the RMD was due, or until the IRS mails a notice of deficiency, whichever comes first.

The takeaway is simple: act fast. The difference between a 25% and a 10% penalty on a $100,000 shortfall is $15,000 — real money for filing a form and taking a withdrawal you owed anyway.

How to Wipe the Penalty Out Entirely

The IRS can waive the excise tax completely if the shortfall was due to “reasonable cause” and you are taking steps to fix it. You request this on Form 5329, which is also where the tax is reported. The IRS has historically been generous with these waivers when a beneficiary corrects the error and explains it honestly.

A Fully Worked Example (Copy This Math)

Numbers make this concrete, so here is the exact calculation a beneficiary would face when the year-10 deadline passes with money still inside.

Suppose Maria inherits a traditional IRA worth $200,000 from her uncle, who died in 2023 before his required beginning date. Maria owes no annual RMDs in years 1 through 9, but she must empty the account by December 31, 2033. She forgets, and on January 1, 2034, the account still holds $180,000.

That entire $180,000 is treated as a missed RMD. The base 25% excise tax is calculated as follows:

Leftover balance treated as missed RMD: $180,000
Excise tax at 25% (tax year of the failure): $180,000 × 0.25 = $45,000
If Maria corrects it within the window and qualifies for the 10% rate: $180,000 × 0.10 = $18,000

On top of that excise tax, Maria still owes ordinary income tax when she withdraws the $180,000. If she is in the 24% federal bracket, that is roughly $43,200 in income tax — separate from the penalty. The combined federal hit at the 25% penalty rate approaches $88,200 on a $180,000 account.

If Maria instead files Form 5329 with a reasonable-cause explanation and empties the account immediately, the IRS may waive the entire $45,000 excise tax, leaving “only” the income tax she always owed. That single form is the difference between a manageable outcome and a financial gut-punch.

Which Situation Applies to You?

The 10-year rule does not apply to everyone, and the penalty exposure changes with your beneficiary type. Find your category below before you panic.

Non-spouse “designated beneficiary” (adult child, friend, sibling): You are almost certainly subject to the 10-year rule and full penalty exposure.
Surviving spouse: You usually escape the 10-year rule by rolling the IRA into your own, or by treating it as an inherited IRA with life-expectancy payouts.
Minor child of the owner: You get life-expectancy RMDs until age 21, then the 10-year clock starts — so your deadline is the year you turn 31.
Disabled or chronically ill heir: You can stretch distributions over your own life expectancy and skip the 10-year rule.
Heir not more than 10 years younger than the owner: You also qualify for life-expectancy payouts.
Trust or estate beneficiary: Rules depend on trust type; non-see-through trusts and estates often fall under a 5-year rule instead.

These exempt categories are called eligible designated beneficiaries (EDBs) under the IRS beneficiary rules. If you are an EDB, the 10-year emptying penalty in this article generally does not threaten you — but note that an EDB’s own death can trigger the 10-year rule for their successor beneficiary.

Three Common Scenarios

Below are the three situations that trip up beneficiaries most often, each showing what you did and what the IRS does in response.

Scenario 1: Account Left Untouched Until Year 11

What You Did	What It Costs You
Ignored the inherited IRA and let the 10-year deadline pass with $150,000 inside	$37,500 excise tax (25%) plus ordinary income tax on the full $150,000 when withdrawn; penalty drops to $15,000 if corrected in the window

Scenario 2: Missed Annual RMDs but Emptied by Year 10

What You Did	What It Costs You
Owner had started RMDs; you skipped your year-1-through-9 withdrawals but drained the account on time in year 10	25% excise tax on each missed annual RMD (for tax year 2025 onward), reducible to 10%, plus income tax — even though you “beat” the final deadline

Scenario 3: Filed Form 5329 With Reasonable Cause

What You Did	What It Costs You
Realized the miss, withdrew the shortfall immediately, and filed Form 5329 requesting a waiver	Likely $0 excise tax if the IRS grants the waiver; you still owe ordinary income tax on the distribution

Real-World Named Examples

Stories stick better than statutes, so here are three heirs facing the rule in different ways.

James, the busy executor. James inherited a $90,000 traditional IRA from his father, who died in 2024 after starting RMDs. James must take annual RMDs in years 1–9 and empty by 2034. He forgot his 2025 RMD of about $3,400, exposing him to a 25% penalty ($850) on just that year’s shortfall — a cheap lesson compared to ignoring the account for a decade.

Priya, the Roth heir. Priya inherited a $120,000 Roth IRA from her aunt. Roth withdrawals are tax-free, so Priya assumed she could leave it forever. She cannot — the 10-year emptying rule applies to inherited Roths too. If she misses the year-10 deadline, the leftover balance triggers a 25% excise tax even though the withdrawal itself is income-tax-free, per IRS guidance on inherited Roths.

Daniel, the U.S. expat. Daniel lives abroad and inherited a $250,000 traditional IRA. He assumed living overseas paused the clock. It does not — the deadline is federal and follows him. He must still empty the account by year 10, report the distribution on his U.S. return, and watch for any tax-treaty interaction with his country of residence.

Mistakes to Avoid

These are the errors that turn a routine inheritance into an expensive one.

Confusing “open the account” with “start the clock.” The 10 years count from the year after death, not from when you set up the inherited IRA — so the deadline is fixed regardless of paperwork delays.
Assuming the 2021–2024 penalty waiver extended your deadline. It did not; the final year is still tied to the death year, and enforcement resumed in 2025.
Thinking Roth inherited IRAs are exempt. The 10-year emptying rule applies to Roths, and a missed year-10 deadline triggers the excise tax even on tax-free dollars.
Forgetting the annual RMD in years 1–9. If the owner had started RMDs, skipping a yearly withdrawal is its own penalty, separate from the final deadline.
Waiting until year 10 to take everything at once. A single huge withdrawal can spike you into a higher tax bracket; spreading withdrawals over the decade usually saves real money.
Trying to roll an inherited IRA into your own (non-spouses only): this is prohibited and can disqualify the entire account, making it fully taxable at once.
Skipping Form 5329 after a miss. Without it, you cannot request the waiver or the reduced 10% rate, and you leave free relief on the table.

Do’s and Don’ts

A quick checklist to keep you on the right side of the IRS.

Do’s

Do confirm your beneficiary type first, because EDBs avoid the 10-year rule entirely and the penalty risk with it.
Do find out if the owner had started RMDs, since that single fact decides whether you owe annual withdrawals.
Do spread withdrawals across the decade to smooth your taxable income and avoid a bracket spike.
Do file Form 5329 immediately if you miss, because it unlocks both the 10% rate and the possible full waiver.
Do keep written records of distributions and dates, which you’ll need if the IRS questions a withdrawal.

Don’ts

Don’t wait until the final year to act, because one lump withdrawal can cost more in income tax than the penalty itself.
Don’t assume your state mirrors federal rules, since state taxation of the distribution varies widely.
Don’t ignore an inherited Roth, because it carries the same 10-year deadline despite being tax-free.
Don’t guess on trust beneficiaries, as trust rules are complex and a wrong move can force a faster 5-year payout.
Don’t skip professional help on large accounts, where a single mistake can cost tens of thousands.

Pros and Cons of the 10-Year Rule

The rule itself is neither all bad nor all good for heirs.

Pros

Flexibility within the decade, because you choose when to withdraw (subject to any annual RMDs), letting you time income to low-tax years.
No forced annual drain in many cases, since heirs of owners who died before their required beginning date face no yearly RMD.
Reduced penalty under SECURE 2.0, as the old 50% excise tax is now 25% or even 10%.
A clear, knowable deadline, which makes planning straightforward once you mark the date.
Waiver relief exists, so an honest mistake is often forgivable through Form 5329.

Cons

Lost tax deferral, because the old stretch-over-a-lifetime strategy is gone for most non-spouse heirs.
Bracket-spike risk, since cramming a large account into one decade can push you into higher rates.
Penalty stacking, as the excise tax piles on top of ordinary income tax.
Easy to misunderstand, given the two-deadline structure trips up even diligent heirs.
State tax exposure, which can add thousands depending on where you live.

Federal vs. State Treatment

Federal law sets the 10-year rule and the excise tax, but your state decides how it taxes the distributions. The federal rule is the same in all 50 states; the state overlay is where outcomes diverge.

Federal Rule	State Rule
Traditional inherited IRA distributions are ordinary income; missed year-10 balance faces a 25% (or 10%) excise tax	Most states with an income tax also tax the distribution as income; the federal excise penalty itself is a federal charge states do not separately mirror
Roth inherited IRA withdrawals are generally federal-income-tax-free	States that conform generally also treat qualified Roth withdrawals as tax-free
Deadline and penalty apply nationwide, including to U.S. citizens living abroad	No-income-tax states (e.g., Florida, Texas, Nevada, Washington) impose no state income tax on the distribution

If you live in a no-income-tax state, you face the federal income tax and any excise tax, but no state income tax on the withdrawal. If you live in a high-tax state, budget for the extra layer. Always check your own state revenue agency for current treatment, since conformity changes.

What to Do Next

If you have an inherited IRA, take these steps now in order.

Identify your beneficiary type — designated beneficiary, EDB, spouse, or trust/estate — to learn whether the 10-year rule even applies to you.
Find the owner’s date of death and whether they had started RMDs, which sets both your final deadline and any annual RMD duty.
Mark your December 31 year-10 deadline on a calendar and set reminders for any annual RMDs in years 1–9.
Plan your withdrawals across the decade to avoid a year-10 bracket spike, ideally with a tax projection.
If you already missed an RMD or the deadline, withdraw the shortfall immediately and file Form 5329 requesting the reduced rate or a reasonable-cause waiver.
Call a CPA or tax attorney if the account is large, held in a trust, or spans multiple years of missed distributions — this is exactly when professional help pays for itself, often for a few hundred dollars against a five-figure risk.

FAQs

What happens if I don’t empty an inherited IRA in 10 years? A 25% excise tax applies to the leftover balance for tax year 2025, treated as a missed RMD, on top of ordinary income tax when you withdraw it. The penalty falls to 10% if corrected promptly.

Is the penalty still 50%? No. The SECURE 2.0 Act cut the old 50% excise tax to 25%, with a reduced 10% rate if you fix the shortfall within the correction window.

Does the 10-year rule apply to inherited Roth IRAs? Yes. Inherited Roth IRAs must be emptied within 10 years too, and missing the deadline triggers the excise tax — even though qualified Roth withdrawals are otherwise federal-income-tax-free.

Can the IRS waive the penalty? Yes. You can request a full waiver for “reasonable cause” by filing Form 5329, withdrawing the missed amount, and explaining the error. The IRS frequently grants these.

When does the 10-year clock start? The year after the owner’s death. If the owner died in 2024, your account must be empty by December 31, 2034 — a fixed calendar count, not tied to when you opened the account.

Did the 2021–2024 penalty waiver extend my deadline? No. The waiver only excused certain missed annual RMDs in those years. Your final year-10 deadline is still measured from the owner’s death, and enforcement resumed in 2025.

Do I owe annual RMDs during the 10 years? It depends. If the owner died on or after their required beginning date, you owe annual RMDs in years 1–9. If they died before it, you owe none until the year-10 emptying.

Who is exempt from the 10-year rule? Eligible designated beneficiaries. Surviving spouses, minor children of the owner, disabled or chronically ill heirs, and heirs not more than 10 years younger generally use life-expectancy payouts instead.

What form reports the penalty? Form 5329. You report the excise tax on missed RMDs and request any waiver or the reduced 10% rate on this form, filed with your federal income tax return.

Does my state tax the inherited IRA withdrawal? Usually, yes. Most income-tax states tax traditional inherited IRA distributions as ordinary income; no-income-tax states like Florida and Texas do not. Check your state revenue agency for current rules.

Can a non-spouse roll an inherited IRA into their own IRA? No. Only a surviving spouse can roll an inherited IRA into their own account. A non-spouse who tries this can make the entire balance immediately taxable.

Does the rule apply if I live outside the U.S.? Yes. The deadline and penalty are federal and follow U.S. citizens and resident heirs abroad. You still report distributions on your U.S. return, with possible tax-treaty effects in your country of residence.

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