The inherited IRA rules have been a moving target for years, but 2025 marks a critical turning point. If you’ve inherited a retirement account since 2020, you need to understand how the IRS’s final regulations affect your required distributions - and how to track them properly in Beancount.
This post is dense because the rules are complex. But getting this wrong can cost you a 25% penalty.
The SECURE Act Changed Everything (2020)
Before 2020, non-spouse beneficiaries could “stretch” inherited IRA distributions over their lifetime. Someone inheriting at age 40 might have 40+ years of tax-deferred growth.
The SECURE Act killed the stretch IRA for most beneficiaries. Now the 10-year rule applies: you must empty the account by December 31 of the year containing the 10th anniversary of the original owner’s death.
But here’s where it gets complicated: do you need annual RMDs during those 10 years, or can you wait until year 10?
The Answer Depends on When the Original Owner Died
The IRS finalized the rules in 2024, effective January 1, 2025:
If the original owner died BEFORE their Required Beginning Date (RBD):
- You do NOT need annual RMDs
- You can let it grow tax-deferred for 10 years
- Then take a lump sum (or distributions anytime before year 10)
If the original owner died AFTER their RBD:
- You MUST take annual RMDs in years 1-9
- Year 10: withdraw remaining balance
- Miss an RMD? 25% penalty on the amount not withdrawn
The RBD is typically April 1 of the year after turning 73 (as of 2023).
My Inherited IRA Tracking Setup
I inherited an IRA from my aunt in 2022. She was 78 and had started her RMDs, so I’m in the “annual RMD required” category.
; Inherited IRA accounts
2020-01-01 open Assets:Retirement:InheritedIRA:AuntMary USD
2020-01-01 open Income:Inheritance:IRA USD
2020-01-01 open Income:InheritedIRA:Growth USD
2020-01-01 open Expenses:Taxes:InheritedIRAWithdrawal USD
; Initial inheritance
2022-06-15 * "Transfer" "Inherited IRA from Aunt Mary's estate"
Assets:Retirement:InheritedIRA:AuntMary 185,000.00 USD
Income:Inheritance:IRA -185,000.00 USD
; Key tracking note
2022-06-15 note Assets:Retirement:InheritedIRA:AuntMary "
=== INHERITED IRA TRACKING ===
Original owner: Mary Thompson
Date of death: 2022-05-01
Owner's age at death: 78
Had owner started RMDs? YES
My relationship: Non-spouse (niece)
Am I an Eligible Designated Beneficiary? NO
Applicable rule: 10-YEAR with ANNUAL RMDs
Deadline to empty account: December 31, 2032
RMD Requirements:
2022: Waived (IRS Notice)
2023: Waived (IRS Notice)
2024: Waived (IRS Notice)
2025: REQUIRED (first mandatory year)
2026-2031: REQUIRED
2032: Empty entire account
"
Calculating and Tracking Annual RMDs
The annual RMD calculation uses the IRS Single Life Expectancy Table and reduces by 1 each year:
; RMD Calculation tracking
2025-01-01 custom "inherited-ira-rmd" "year" "2025"
2025-01-01 custom "inherited-ira-rmd" "prior_year_end_balance" "195000"
2025-01-01 custom "inherited-ira-rmd" "life_expectancy_factor" "27.4"
2025-01-01 custom "inherited-ira-rmd" "calculated_rmd" "7117" ; $195,000 / 27.4
; Record the RMD withdrawal
2025-12-01 * "Fidelity" "Inherited IRA RMD - 2025"
Assets:Checking 7,117.00 USD
Assets:Retirement:InheritedIRA:AuntMary -7,117.00 USD
; Estimated tax impact (ordinary income)
2025-12-01 note Assets:Checking "
RMD withdrawn: $7,117
Tax bracket: 24%
Estimated federal tax: $1,708
State tax (if applicable): varies
Remember: This is taxed as ordinary income!
"
The 10-Year Distribution Strategy
You have choices in how to distribute the account:
; Distribution strategy tracking
2025-01-01 note Assets:Retirement:InheritedIRA:AuntMary "
=== DISTRIBUTION STRATEGY OPTIONS ===
OPTION A: Minimum RMDs + Year 10 Lump Sum
Years 1-9: Take minimum RMD only
Year 10: Large taxable distribution
Risk: Huge tax hit in year 10
Pro: Maximum tax-deferred growth
OPTION B: Equal Annual Distributions
Distribute ~$19,500/year over 10 years
Smooth, predictable tax impact
May not satisfy RMD if balance grows
OPTION C: Accelerated Front-Loaded
Take larger distributions in years 1-5
Smaller amounts in years 6-10
Good if expecting higher income later
OPTION D: Tax Bracket Management
Each year, fill up current tax bracket
Take more when income is lower
Requires active monitoring
MY CHOICE: Option D (Tax Bracket Management)
2025: Lower income year (sabbatical) - take extra
2026+: Adjust based on W-2 income
"
Tax Bracket Optimization with Beancount
Here’s how I track whether to take more than the minimum RMD:
; Tax bracket analysis
2025-11-01 note Expenses:Taxes "
=== 2025 TAX BRACKET ANALYSIS ===
Current taxable income (through Nov): $65,000
Standard deduction: $15,000
Taxable after deduction: $50,000
24% bracket ends at: $103,350 (single 2025)
Room in 24% bracket: $53,350
Inherited IRA minimum RMD: $7,117
Additional withdrawal capacity at 24%: $46,233
DECISION:
Take $25,000 from inherited IRA this year
$25,000 × 24% = $6,000 tax
vs. waiting and potentially paying 32%
REMAINING IN ACCOUNT:
Current balance: $195,000
- $25,000 withdrawal
= $170,000 remaining
Years left: 8
"
; Execute the strategic withdrawal
2025-12-01 * "Fidelity" "Inherited IRA - Strategic Distribution"
Assets:Checking 25,000.00 USD
Assets:Retirement:InheritedIRA:AuntMary -25,000.00 USD
2025-12-31 balance Assets:Retirement:InheritedIRA:AuntMary 170,000 USD
What About Inherited Roth IRAs?
Different rules! Inherited Roth IRAs still follow the 10-year rule BUT:
- No annual RMDs required (regardless of when owner died)
- Qualified distributions are tax-free
- Still must empty by year 10
2020-01-01 open Assets:Retirement:InheritedRothIRA USD
; Inherited Roth strategy note
2025-01-01 note Assets:Retirement:InheritedRothIRA "
INHERITED ROTH IRA RULES:
- 10-year rule applies: must empty by year 10
- NO annual RMDs required
- Qualified distributions are TAX-FREE
Strategy: Let it grow tax-free for 10 years
Take lump sum in year 10
No income tax impact!
Exception: Account must be 5+ years old
for earnings to be tax-free
"
The Eligible Designated Beneficiary Exception
Some beneficiaries don’t follow the 10-year rule:
2025-01-01 note Assets:Planning "
=== ELIGIBLE DESIGNATED BENEFICIARIES (EDBs) ===
These beneficiaries can use LIFE EXPECTANCY method:
1. Surviving spouse
- Can treat as own IRA OR
- Use life expectancy method
2. Minor children (of the owner only)
- Until age of majority (18-21 by state)
- Then 10-year clock starts
3. Disabled individuals
- Must meet IRS disability definition
4. Chronically ill individuals
- Must meet IRS criteria
5. Individuals not more than 10 years younger
- Example: inherit from sibling close in age
I am NOT an EDB (niece, 25 years younger)
Therefore: 10-year rule applies to me
"
My Tracking Dashboard
I built a simple query to monitor my inherited IRA status:
=== INHERITED IRA STATUS - Q4 2025 ===
Account: Inherited IRA (Aunt Mary)
Original balance (2022): $185,000
Current balance: $170,000
Distributions to date: $25,000
10-Year Deadline: December 31, 2032
Years remaining: 7
Required RMD met for 2025? YES ($25,000 > $7,117 minimum)
Tax paid on distributions: ~$6,000 (estimated)
Projected remaining tax (at 24%): ~$40,800
Questions for the Community
-
Multi-inherited-IRA tracking - How do you manage multiple inherited accounts with different deadlines?
-
Tax projection tools - Anyone build BQL queries to project optimal distribution amounts?
-
Beneficiary of an inherited IRA - The rules get even more complex when inherited IRAs are inherited again. Anyone dealt with this?
-
State tax implications - How do you track state taxes on inherited IRA distributions, especially if living in a different state than the original owner?
The rules are finally settled, but the tracking challenge remains. How are you handling inherited IRA distributions in your Beancount setup?