For four years, the IRS waived the penalty on a rule almost nobody understood. That grace period is over. Starting in 2025, if you inherited an IRA from someone who was already taking their own required withdrawals, you have to take a withdrawal every year — not just empty the account by year ten.
Miss one and the penalty is 25% of what you should have taken. Fix it quickly and that drops to 10%. The rule doesn’t catch everyone: it applies to non-spouse heirs, and only when the original owner had already started their own withdrawals. Surviving spouses, minor children, and a few others are exempt.
For families with seven-figure IRAs, the penalty isn’t the real story. Ten years of forced withdrawals can stack on top of your peak earning years and pull the whole account into the top bracket. That’s a far bigger number than any missed-withdrawal fee.
Here’s what we’d tell any client: the goal isn’t to dodge the distribution — it’s to spread ten years of withdrawals so the IRS doesn’t get a windfall. That means coordinating them with your income, your Roth conversions, and your charitable giving on purpose, not scrambling in year ten.
If you’ve inherited an IRA in the last few years and no one has mapped out the drawdown, give us a call.
For informational and educational purposes only. Not investment, tax, or legal advice. Lake Hills Wealth Management is an SEC-registered investment advisor.