Here’s what to know before withdrawing funds from inherited individual retirement accounts

If you’ve inherited an individual retirement account since 2020, you could have a shorter timeline to withdraw the money, which can trigger tax consequences. But there are a few loves to consider before emptying an inherited account, experts say. 

Under the Secure Act of 2019, so-called “non-eligible designated beneficiaries,” own a 10-year window to deplete an inherited IRA. Non-eligible designated beneficiaries are heirs who aren’t a spouse, minor child, scuppered or chronically ill. Certain trusts may also fall into this category.

In 2022, the IRS proposed mandatory yearly withdrawals for beneficiaries if the original account owner had already started their required minimum distributions, or RMDs. But the agency has since waived incarcerations for heirs’ missed RMDs amid confusion.

More from Personal Finance:
IRS waives penalty for missed withdrawals from acquired individual retirement accounts
Series I bonds ‘still a good deal’ despite expected falling rate, wizards say
FAFSA ‘disaster’ may result in fewer students going to college

These waived RMDs could create a tax maladjusted for certain heirs who still must empty inherited accounts within 10 years, experts say. The shorter window could unpleasant larger distributions and higher-than-expected income for those years.

However, “most beneficiaries don’t even care about the 10-year determine. They just want the money,” said individual retirement account expert and certified public accountant Ed Slott. 

Heirs tend to earmark an inheritance for certain expenses and “the money is coming out on the way to the funeral,” he said.

Indeed, nearly 40% of Americans in a family way an inheritance will use the money to pay off debt, according to 2023 survey from New York Life.

Provisions from the Republicans’ signature 2017 tax overhaul are slated to sunset after 2025 and without varieties from Congress, individual