Amid ongoing changes to retirement rules, a simple question is still causing headaches: how long do heirs have to empty an inherited account? At a recent public discussion on retirement withdrawals, one participant summed up the uncertainty plainly, raising concerns for families and advisors working to stay compliant with tax law.
“My understanding is that they have five years to withdraw the money.”
The issue centers on how quickly non-spouse beneficiaries must distribute funds from inherited individual retirement accounts. Rules have shifted in recent years, and interim guidance has added layers of complexity. The answer depends on who inherited the account, when the original owner died, and whether that person had started required minimum distributions.
What the Five-Year Rule Means
Before 2020, a five-year deadline applied in limited cases. If the original account owner died before starting required withdrawals and the beneficiary did not qualify for “stretch” payments, the entire balance had to be withdrawn by the end of the fifth year after death. There were no annual minimums in that window, but the account had to be cleared by the deadline.
That framework still exists for some older situations and for certain account types. It also appears when specific beneficiary choices are made. But it is no longer the default for most non-spouse heirs when the original owner died after 2019.
How the SECURE Act Changed Timelines
Congress reshaped the rules with the SECURE Act, effective for deaths in 2020 and later. Most non-spouse beneficiaries now face a 10-year deadline, not five. These heirs generally must empty the account by the end of the 10th year after death.
Some beneficiaries—such as surviving spouses, minor children of the decedent, disabled or chronically ill individuals, and heirs close in age to the decedent—can still take lifetime-style distributions. These “eligible” beneficiaries may use longer schedules, though minors lose that status when they reach the age of majority, starting the 10-year clock.
IRS Guidance and Current Relief
The Internal Revenue Service added another twist in 2022. Proposed regulations stated that when the original owner died after starting required withdrawals, heirs under the 10-year rule may also need annual payouts in years one through nine, on top of emptying the account by year 10.
Because those proposals created confusion, the IRS issued transition relief. Notices in 2022, 2023, and 2024 waived penalties for missed annual payouts in the early years for many affected heirs. The 10-year deadline still applies, but enforcement of the interim annual pieces has been eased while the rules are finalized.
Tax practitioners say the relief prevents accidental penalties but does not erase the final deadline. Advisors recommend tracking the year of death and the original owner’s withdrawal status to set a clear plan.
Why Confusion Lingers
Different timelines can apply to accounts inherited in different years within the same family. Households dealing with multiple estates may juggle five-year, 10-year, and lifetime schedules at once. Financial firms may display generic warnings that do not fit every account, adding to uncertainty.
Even seasoned investors can misapply the five-year timeline where the 10-year rule now governs. Others overlook the possibility of required annual withdrawals under the proposed guidance. The result is uneven advice and potential tax exposure.
What Beneficiaries Should Do Now
Experts suggest a simple checklist to reduce errors and avoid unnecessary taxes:
- Confirm the year the original owner died and whether required withdrawals had begun.
- Identify the beneficiary type: spouse, eligible beneficiary, or other non-spouse.
- Determine whether a five-year, 10-year, or lifetime schedule applies.
- Note any transition relief for missed annual payouts under the 10-year rule.
- Set calendar reminders for the final distribution deadline.
Beneficiaries should also review state tax rules, which may differ from federal treatment, and coordinate with custodians to avoid forced distributions at inopportune times.
The debate over “five years” reflects a deeper problem: changing law followed by evolving guidance. For now, most non-spouse heirs of accounts inherited after 2019 face a 10-year finish line. The IRS continues to refine the details on annual payments within that window. Families handling inheritances should document the facts of each account and seek timely advice.
As the government finalizes regulations, the key dates will become clearer. Until then, the safest path is to confirm the applicable rule for each account early and create a withdrawal plan that matches both the deadline and market conditions. Watch for final IRS regulations and any new relief, which could adjust the timing of annual payouts but are unlikely to change the 10-year end date for most heirs.
