As we head into the second half of the year, we want to highlight an important update that may impact clients who have inherited retirement accounts.
You may not have known it, but you've likely enjoyed a bit of breathing room — the IRS waived required minimum distributions (RMDs) for many inherited IRAs from 2021 through 2024. That window has now closed. Starting in 2025, RMDs are back in effect, and it’s important to be prepared.
What Changed
The SECURE Act, passed in 2019, introduced the 10-year rule for most non-spouse beneficiaries. Under this rule, inherited IRAs must be fully distributed within 10 years of the original account owner's death.
If the person from whom you inherited the IRA had already begun taking RMDs, the IRS requires you to take annual distributions in years 1 through 9, in addition to fully depleting the account by the end of year 10. Although the rule has been in place, the IRS waived enforcement for 2021 through 2024.
That grace period has ended. 2025 is the first year that many beneficiaries will be required to take action.
Why This Matters — Even If You Aren’t Required to Take RMDs Yet
- The Penalty Is Back: Missing an RMD in 2025 could result in a 25% penalty (reduced to 10% if corrected promptly).
- Roth IRAs Are Affected Too: Inherited Roth IRAs must also be emptied within 10 years — and timing matters, even if distributions aren’t taxable.
- No Annual RMDs? You Still Need a Plan: Some beneficiaries aren’t subject to annual distributions but still must withdraw the entire balance by year 10. Waiting until the final year can result in an unexpectedly large tax bill. Planning ahead can help you avoid surprises and control your taxable income.
How Baldwin Capital Helps
We understand that the rules around inherited IRAs have been unclear — and that many clients haven’t needed to take action until now. At Baldwin Capital, we proactively coordinate inherited IRA distribution strategies as part of your broader tax and retirement plan. We can help you:
- Confirm whether you're required to take an RMD in 2025
- Calculate the correct distribution amount
- Strategically time withdrawals over the 10-year window
- Coordinate inherited IRA distributions with Roth conversions*, gifting strategies, and other tax-efficient planning opportunities
Let’s Talk
If you inherited a retirement account in 2020 or later, we recommend reviewing your situation before year-end. Whether or not you’re required to take a distribution in 2025, now is the time to evaluate your options and put a plan in place.
*A Roth IRA conversion—sometimes called a backdoor Roth strategy—is a way to contribute to a Roth IRA when income exceeds standard limits. The converted amount is treated as taxable income and may affect your tax bracket. Federal, state, and local taxes may apply. If you’re required to take a minimum distribution in the year of conversion, it must be completed before converting.
To qualify for tax-free withdrawals, you must generally be age 59½ and hold the converted funds in the Roth IRA for at least five years. Each conversion has its own five-year period, and early withdrawals may be subject to a 10% penalty unless an exception applies. Income limits still apply for future direct Roth IRA contributions.
This material is for informational purposes only and does not constitute tax, legal, or investment advice. Please consult a qualified tax professional regarding your individual circumstances.