How does the 10-year rule affect inherited 401(k) RMDs under the 2026 law changes?
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Executive summary
The 10‑year rule generally requires beneficiaries of post‑2019 inherited IRAs and many inherited 401(k)s to fully empty the account by December 31 of the 10th year after the original owner’s death, but IRS regulations finalized in 2024–25 clarify when annual RMDs are required during that decade and preserve exceptions for certain beneficiaries such as eligible designated beneficiaries and surviving spouses [1] [2]. The IRS also delayed putting some of those regulations into effect no earlier than the 2026 distribution year, creating a short transition window and lingering uncertainty for planning [3].
1. What the 10‑year rule means in plain terms
Under the SECURE Act changes that took effect for deaths after December 31, 2019, most designated individual beneficiaries who inherit an IRA or 401(k) must liquidate the account within 10 years of the owner’s death — the so‑called “10‑year rule” [1]. That rule replaces the old lifetime “stretch” option for many beneficiaries and forces distributions to occur within a defined decade [4] [5].
2. Annual RMDs vs. lump‑sum at year 10 — the IRS answered a big question
A key point of confusion after the SECURE Act was whether non‑spouse beneficiaries had to take annual required minimum distributions during the 10‑year window or could simply wait and take everything in year 10. Final IRS guidance resolved that many beneficiaries who inherited accounts from owners already subject to RMDs must continue taking annual RMDs in years 1–9, not just a single distribution at year 10 [6] [7]. Fidelity and other firms explain that if the decedent had already begun RMDs, beneficiaries generally must take RMDs in years 1–9 with any leftover balance due by the 10th‑year deadline [8] [1].
3. Who keeps lifetime‑stretch treatment — the exceptions
The law still preserves stretch‑type treatment for certain “eligible designated beneficiaries” (EDBs): surviving spouses, minor children (with special timing), disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the decedent. For some EDBs, annual RMDs continue to be calculated using life‑expectancy tables during the applicable period instead of being forced into a simple 10‑year lump sum [2] [1].
4. How the timing of the original owner’s RMDs changes the rule
Whether the decedent was already taking RMDs when they died matters. If the original owner had begun RMDs, the beneficiary will generally be required to take annual RMDs during years 1–9 and then clear the account by year 10; if the owner died before their required beginning date, different options and timing can apply, but the 10‑year deadline generally still governs designated beneficiaries [1] [9].
5. Practical tax consequences and why many advisers recommend spreading withdrawals
Financial outlets and firms warn that forcing distributions into a 10‑year window can push beneficiaries into higher tax brackets and may affect Medicare premiums and other means‑tested benefits; spreading distributions over the decade is commonly recommended to manage tax bite [10] [7]. Advisors also note that Roth accounts are subject to the same 10‑year rule (so tax‑free growth inside the account ends once distributed) even though distributions of Roth contributions and, generally, earnings may remain tax‑free when withdrawn appropriately [5] [9].
6. Implementation timing: an IRS delay matters to planning
Although final regulations clarified annual RMD requirements, the IRS announced a plan to delay the applicability date of those final regulations so they will not apply any earlier than the 2026 distribution calendar year; that means some rules won’t be enforced until 2026, giving beneficiaries and advisers a short transition window and creating uncertainty for 2025 planning [3]. Firms have been advising clients based on the finalized guidance but have also flagged the delayed applicability as important for timing [8] [3].
7. Penalties, corrections and compliance risk
Penalties for missed RMDs were reduced from the former 50% rate to 25% (and can drop to 10% with timely correction under certain conditions), a change that affects the stakes for beneficiaries who miss distributions in any year when annual RMDs are required [10] [11]. That easing reduces but does not eliminate the compliance risk — and the IRS’s delayed applicability complicates the question of which penalty rules apply in which years [3] [10].
8. What’s not fully settled in available reporting
Available sources make clear many practical rules and that the IRS delayed applicability to 2026, but they do not provide a comprehensive, line‑by‑line roadmap of every type of 401(k) plan provision or trust‑as‑beneficiary scenario; plan documents and trust drafting still materially affect outcomes and are not fully covered in these summaries (not found in current reporting). Consult plan administrators and a tax advisor for account‑specific application.
Bottom line: the 10‑year rule forces most beneficiaries to empty inherited retirement accounts within 10 years, and IRS guidance confirmed many beneficiaries must take annual RMDs during that period if the decedent was already taking RMDs — but the IRS has said the final regulations won’t apply before the 2026 distribution year, so timing and penalty rules for the immediate years remain a live planning issue [1] [6] [3].