I Inherited an IRA – Now What? The 10-Year Rule That’s Costing Families Thousands

The inherited IRA 10-year rule is a federal tax requirement that forces most non-spouse beneficiaries to fully withdraw inherited IRA funds within 10 years of the original owner’s death. Ignoring this rule or misunderstanding its timing can trigger massive, avoidable tax bills that quietly drain what your loved one left behind.

This guide focuses specifically on Washington State residents who have recently inherited an IRA and need to understand their distribution options, tax exposure, and legal planning strategies before making any moves.

Inherited IRA Definition: An inherited IRA (also called a beneficiary IRA) is a retirement account passed to a non-original-owner beneficiary after the account holder’s death, subject to specific IRS distribution rules that differ significantly from standard IRA rules.

Here’s the thing most families don’t realize until it’s too late: the 10-year rule, introduced under the SECURE Act and clarified further through IRS guidance, doesn’t just mean you have 10 years to slowly pull money out. Depending on whether the original owner had started taking required minimum distributions (RMDs), you may face annual withdrawal requirements on top of the 10-year deadline. Getting this wrong means penalties and a tax hit that could have been spread out or minimized with the right plan.

What the 10-Year Rule Actually Means for Inherited IRAs

The SECURE Act of 2019 eliminated the popular “stretch IRA” strategy, which allowed beneficiaries to spread distributions over their entire lifetime. Under current federal law (2026), most non-spouse beneficiaries must empty the account within 10 years of the original account holder’s death.

Eligible Designated Beneficiaries (EDBs) are a defined category of recipients who are still permitted to stretch distributions over their lifetime. This group includes:

• Surviving spouses
• Minor children of the deceased (until they reach the age of majority)
• Disabled or chronically ill individuals
• Beneficiaries not more than 10 years younger than the deceased

Everyone else falls under the 10-year rule. That includes adult children, siblings, friends, and most trusts named as beneficiaries. According to the Internal Revenue Service, failure to take required distributions results in a 25% excise tax on the amount that should have been withdrawn.

The most common mistake families make is waiting until year 9 or 10 to take large distributions, which can push them into a much higher federal income tax bracket for that year. A $300,000 IRA withdrawn all at once looks very different on a tax return than the same amount spread strategically over 10 years.

Thinking about how this applies to your specific situation? Contact us at Terry Law Firm, P.S. for a straight conversation about your options. No pressure, no guessing.

Lump-Sum Withdrawal vs. Annual Distributions: Which Approach Works?

Where lump-sum withdrawal succeeds: Simple, immediate access to funds. Works well if the inherited amount is small or the beneficiary is already in a low tax bracket. Eliminates ongoing account management.

Where lump-sum withdrawal fails: Dramatically increases taxable income for that year. Can push beneficiaries into the 32%, 35%, or even 37% federal bracket. Offers no opportunity for continued tax-deferred growth.

Where annual distributions succeed: Allows strategic timing to minimize tax bracket exposure. Spreads income across multiple tax years. Preserves tax-deferred growth longer within the account.

Where annual distributions fail: Requires annual planning and discipline. If the original owner was already taking RMDs, the beneficiary faces mandatory annual withdrawals that remove flexibility.

The verdict: For most Washington families inheriting a traditional IRA of $100,000 or more, a planned annual distribution strategy nearly always reduces the total tax paid compared to a lump-sum approach. The right strategy depends on your current income, expected income over the next decade, and whether you have offsetting deductions.

Approach	Tax Impact	Flexibility	Best For
Lump-Sum (Year 1)	Highest single-year tax hit	Low	Small balances, low-income years
Equal Annual Distributions	Moderate and predictable	Medium	Steady income beneficiaries
Strategically Timed Distributions	Lowest total tax over 10 years	High	Most beneficiaries with $100K+
Delay Until Year 10	Very high single-year tax hit	Low	Not recommended for most

Your Inherited IRA Action Plan

1. Step 1 – Confirm Beneficiary Status: Verify whether you qualify as an Eligible Designated Beneficiary or fall under the standard 10-year rule. This determines your entire distribution strategy.
2. Step 2 – Identify the Account Type: Traditional IRAs generate ordinary income tax on distributions. Roth IRAs inherited follow the same 10-year window but qualified distributions are tax-free. Knowing which you have changes the urgency level.
3. Step 3 – Check Whether the Original Owner Had Started RMDs: If yes, you may owe annual distributions within the 10-year window. If no, you have more flexibility in timing.
4. Step 4 – Project Your Income Over the Next 10 Years: Identify lower-income years where you can take larger distributions without jumping tax brackets. Retirement, career changes, or major deductions can create ideal withdrawal windows.
5. Step 5 – Consult a Legal and Tax Professional: Especially if the estate involves a trust as beneficiary, multiple beneficiaries, or a large balance. Washington residents should note that the state has no income tax, which affects the net cost of distributions compared to neighbors like Oregon, which taxes distributions as ordinary income.

See how our services at Terry Law Firm, P.S. can help you work through each of these steps with clarity and confidence.

What Washington Residents Have Working in Their Favor

Washington State has no personal income tax (2026), which is a meaningful advantage. Every dollar you withdraw from an inherited IRA is only subject to federal income tax, not a state-level tax. Oregon beneficiaries, by contrast, pay state income tax rates up to 9.9% on top of federal obligations. Idaho taxes retirement distributions at up to 5.8%.

That said, Washington does have an estate tax with a threshold of $2.193 million (2026), one of the lowest thresholds in the nation. If you inherited an IRA as part of a larger estate near or above that threshold, the tax picture becomes more complex. According to the Washington State Department of Revenue, the estate tax applies to the taxable estate before distribution to beneficiaries, not to the distributions themselves. These are separate tax events worth understanding clearly.

Families throughout the Sumner area, including those in Pierce County, Puyallup, Auburn, Bonney Lake, and Tacoma, regularly navigate inherited IRA decisions without a clear plan. The consequences show up years later in unnecessarily high tax bills.

Common Mistakes That Cost Families the Most

• Assuming the 10-year rule means no withdrawals are required before year 10
• Failing to open a separate inherited IRA account and instead rolling funds into a personal IRA (this is not allowed for non-spouse beneficiaries)
• Missing the 10-year deadline entirely, triggering the 25% excise tax
• Not accounting for how distributions interact with Medicare premium thresholds (IRMAA surcharges can apply at higher income levels)
• Treating a Roth inherited IRA identically to a traditional inherited IRA when the tax treatment is fundamentally different

Key Takeaways for Washington Families in 2026

• The 10-year rule applies to most non-spouse beneficiaries – full distribution is required within 10 years of the original owner’s death.
• Washington’s lack of state income tax reduces the total tax cost of distributions compared to Oregon or Idaho.
• Strategic annual withdrawals nearly always outperform lump-sum or delayed approaches for larger accounts.
• Roth and traditional inherited IRAs follow different tax rules despite sharing the same 10-year deadline.
• Missing required distributions carries a 25% excise tax penalty under current IRS rules.

Frequently Asked Questions

Does the 10-year inherited IRA rule require annual withdrawals?

It depends on whether the original account owner had already started taking required minimum distributions (RMDs) before their death. If they had, you must take annual distributions during the 10-year window. If they had not yet reached RMD age, you have flexibility in timing but must fully empty the account by the end of year 10.

Can a surviving spouse avoid the 10-year rule on an inherited IRA?

Yes – surviving spouses are Eligible Designated Beneficiaries and can roll the inherited IRA into their own IRA or stretch distributions over their lifetime. This is one of the most valuable planning tools available to married couples and is worth structuring carefully in your estate plan.

What happens if I miss the 10-year distribution deadline?

Missing the 10-year deadline triggers a 25% excise tax on the amount that should have been distributed. The IRS has issued penalty relief in prior years for beneficiaries confused by changing guidance, but relying on future relief is not a sound strategy.

Does Washington State tax inherited IRA distributions?

Washington State does not have a personal income tax, so IRA distributions are only subject to federal income tax at the beneficiary’s ordinary income rate. This is a significant advantage compared to neighboring states like Oregon, which taxes distributions at up to 9.9%.

How much does estate planning help with inherited IRA strategy cost?

Attorney fees for inherited IRA and estate planning consultations vary, but flat-fee consultations in Washington typically range from $250 to $500, with more complete planning engagements ranging from $1,500 to $5,000 depending on complexity. These are general industry ranges, not the specific fees of any one firm.

Should a trust be named as beneficiary of an IRA?

Naming a trust as an IRA beneficiary is complex and can restrict distribution flexibility if not drafted correctly. A trust that qualifies as a “see-through” trust may allow the trust beneficiaries to use the 10-year rule, but improperly drafted trusts can compress the entire distribution into 5 years or less.

Your Next Step

Inherited IRAs carry real financial stakes, and the clock starts ticking the moment the original owner passes. Getting the distribution strategy right can save your family thousands in federal taxes over the next decade. Getting it wrong is a cost you’ll feel for years.

Ready to get clear answers? Contact us today at Terry Law Firm, P.S. in Sumner, WA. We’ll walk through your specific situation and help you understand exactly what your options are before any decisions are made. Don’t wait until the tax year closes and the window narrows.