If you inherited a traditional IRA from someone who was already taking required minimum distributions, you probably owe a withdrawal this year, and the deadline is December 31, 2026. For four years the IRS waived the penalty for missing it. That waiver is over. The penalty is 25% of whatever you should have taken and did not.
This is the second year the rule has been enforced. If you inherited an IRA in the last few years, you were probably told, correctly at the time, that you had ten years to empty the account. The rules changed after that.
What changed
The SECURE Act ended the stretch IRA at the end of 2019. If you inherit a retirement account from someone other than a spouse, and you are not disabled, chronically ill, a minor child of the deceased, or within ten years of their age, you have to empty the account by December 31 of the tenth year after the death. That part is widely understood.
A second requirement came later. The IRS issued final regulations in July 2024 that settled a question people had been arguing about for four years. If the person you inherited from had already reached their required beginning date, meaning they were already taking their own required minimum distributions, then you have to take an annual distribution in each of years one through nine as well. The ten-year deadline is the outer limit, with a required withdrawal due in each year before it. You cannot let the account sit untouched for nine years and clear it out in the tenth.
If the person died before their required beginning date, this does not apply to you. You still have to empty the account within ten years, but there is no annual requirement along the way.
Inherited Roth IRAs are treated as though the owner died before their required beginning date, always. So there is no annual distribution requirement on an inherited Roth. The ten-year emptying deadline still applies.
Why this is landing on people now
Between 2022 and 2024, the IRS issued a series of notices waiving the penalty for beneficiaries who did not take these annual distributions. The rules were unsettled, and the agency chose not to punish people for guessing wrong.
Those waivers covered distribution years 2021 through 2024. They were not extended. Distribution year 2025 was the first year the requirement carried a real penalty, and 2026 is the second.
That leaves a specific group exposed. Someone who inherited an IRA in 2021 or 2022 was told about the ten-year rule, correctly took nothing for the first few years because the IRS said they did not have to, and has not revisited it since. That person has a distribution due by December 31 and probably does not know it.
What it costs
The penalty is an excise tax of 25% of the amount you should have withdrawn. If you correct it within the correction window and file Form 5329, it drops to 10%. The penalty is the smaller of the two costs.
Consider someone who inherits a $400,000 traditional IRA from a parent who died at 78, already taking distributions. The beneficiary is 52, married, with $180,000 of taxable income, which puts the household in the 22% bracket. The annual required distribution in the early years lands somewhere in the neighborhood of $11,000 to $12,000, using the IRS Single Life Table and the beneficiary's age.
Miss one, and the penalty is roughly $3,000 before the correction relief.
Now consider the version where nobody catches it. The account is never touched. At a hypothetical 6% average return, that $400,000 becomes roughly $716,000 by year ten, and the entire balance has to come out in a single tax year. Stacked on top of $180,000 of existing taxable income, that pushes the household through the 24%, 32% and 35% brackets and into the top 37% rate, which starts at $768,700 for a married couple in 2026. Federal tax on the inherited money comes to about $225,000 that year, roughly 31 cents of every dollar, because of a scheduling decision nobody made deliberately.
Spread the same account evenly across the ten years instead, about $54,000 a year at the same hypothetical return, and every withdrawal lands in the 22% and 24% brackets. The federal tax on it runs about 23 cents per dollar. That gap of roughly eight cents a dollar is worth about $60,000 on an account this size.
The other dates that matter
The annual distribution is the one with a penalty attached this year, but it is not the only dated decision that follows an inherited IRA, and several of them cannot be undone.
The year-of-death distribution. If the person who died had not yet taken their own required minimum distribution for the year, the beneficiary has to take it. There is relief available if it is taken by the later of your filing deadline for the year of death or December 31 of the following year.
Nine months from the date of death. That is the window for a qualified disclaimer, which redirects the assets to the contingent beneficiary. It is occasionally the right answer for tax or estate reasons. It is irrevocable and the window does not reopen.
September 30 of the year after death. This is the date the beneficiaries are determined. If a charity or an estate is among them and has not been paid out by then, it can affect the treatment for everyone else.
December 31 of the year after death. The deadline to split a single inherited IRA into separate accounts for each beneficiary. Miss it and everyone is locked to the oldest beneficiary's timeline.
One rule with no deadline and no fix. A non-spouse beneficiary cannot do a 60-day rollover of an inherited IRA. The transfer has to move directly between custodians. If the custodian cuts a check payable to you, the entire balance is taxable income in that year. There is no correction procedure for this. On the $400,000 account above, that is $400,000 of income in one year. It usually happens in the first month, when someone is grieving and a well-meaning bank employee offers to just cut a check.
What to do before December 31
Find out the date of death and whether the person had reached their required beginning date. That single fact determines whether you owe annual distributions at all.
If you do, calculate what is due for 2026 and take it before the last business day of December, not the last day. Custodian processing backs up badly in late December, and a distribution that settles on January 2 is a 2027 distribution.
If you have missed prior years, the correction procedure exists and it is available. Form 5329 with a reasonable cause statement reduces the penalty, and the IRS can waive it entirely. This gets better when you fix it voluntarily and worse when a notice arrives first.
Then look at the whole ten-year window rather than just this year's requirement. The annual minimum is only a floor. In most cases the right answer is to take more than the minimum in the low-income years, particularly if you are between retirement and Social Security, and less in the years you are working at peak income. That decision is worth more than the penalty you are trying to avoid.
How I handle it
The distribution schedule is a tax return question and a portfolio question at the same time, and the answer to one changes the answer to the other.
I am an Enrolled Agent, admitted to practice before the Internal Revenue Service, and I prepare returns alongside the planning work, which means the withdrawal schedule and the return that reports it get built by the same person. On inherited accounts I work alongside your estate attorney rather than in place of one, because the titling and the beneficiary questions are legal work and I do not do legal work.
If you inherited an account in the last several years and have not looked at it since, the useful thing is to check the date of death and whether an annual distribution is due before year-end. If you want that modeled against your own return before December, that is a conversation worth having.
Aaron Randak, CFP®, EA · Golden Acre Wealth Management · Scottsdale, Arizona
Golden Acre LLC dba Golden Acre Wealth Management is an investment adviser registered with the Arizona Corporation Commission, CRD #337930. This article is educational and is not individualized tax, investment, or legal advice. Tax rules change and their application depends on your specific circumstances. Examples use 2026 federal brackets held flat for illustration and a hypothetical return; they are not a projection.