The 2026 RMD Rule Change That Could Trigger a Massive Tax Bill for Certain Retirees

Many Americans may inherit retirement accounts without realizing that they may also be inheriting a complicated set of tax rules. For some beneficiaries, a misunderstanding today could lead to a surprisingly large tax bill tomorrow.

For families hoping to avoid money mistakes, one inherited IRA rule deserves special attention heading into 2026. The IRS has spent several years providing temporary relief from certain distribution requirements, but those waivers have now largely run their course. That means some beneficiaries need to pay closer attention before year-end.

The 10-year inherited IRA rule changed the landscape

The SECURE Act dramatically changed inherited IRA rules for many non-spouse beneficiaries.

For most non-spouse beneficiaries who inherited an IRA after 2019, they must fully distribute the inherited account by the end of the tenth year following the original owner's death.

At first glance, that may sound straightforward. However, the complication comes from determining whether annual required minimum distributions (RMDs) are also required during those ten years.

Some beneficiaries now face annual withdrawal requirements

In 2024, the IRS finalized regulations clarifying that certain beneficiaries subject to the 10-year rule must take annual required minimum distributions during years one through nine if the original account owner had already begun taking RMDs before death. The account must still be fully emptied by the end of year ten.

That means some beneficiaries face two separate obligations: annual distributions throughout the period and complete distribution by the final deadline. For people who assumed they could simply wait until year ten, the clarification came as an unwelcome surprise.

IRS penalty relief has ended

For several years, the IRS provided temporary relief as taxpayers and advisors tried to navigate the uncertainty surrounding the new rules.

Notice 2024-35 extended penalty relief for certain missed inherited IRA distributions through 2024. As a result, beneficiaries who failed to take required distributions during the transition period generally avoided excise taxes.

Beginning with required distributions for 2025 and beyond, affected beneficiaries generally need to comply with the annual withdrawal rules or potentially face penalties.

Missing a required distribution can be expensive

The consequences of missing a required inherited IRA distribution can be significant.

Under current law, the excise tax for failing to take a required minimum distribution is generally 25% of the amount that should have been withdrawn. In certain situations, the penalty may be reduced if the error is corrected promptly.

Even so, a missed distribution can create an expensive and unnecessary headache. The larger the inherited account balance, the larger the potential penalty. That is why understanding the rules before the end of the year is so important.

Waiting until year 10 could create a major tax problem

The penalty is not the only concern. Eligible beneficiaries may have planned to leave inherited IRA assets untouched for nearly the entire 10-year period before taking a large lump-sum distribution at the end. While that approach may seem convenient, it can create a substantial tax burden.

A large withdrawal in a single year can push taxable income into higher federal tax brackets. It may also increase Medicare Part B and Part D premiums through Income-Related Monthly Adjustment Amount (IRMAA) surcharges. It's worth noting that IRMMA surcharges apply based on your modified adjusted gross income (MAGI) from two years prior, making prior tax planning absolutely crucial.

Spreading distributions over multiple years may produce a more manageable tax outcome.

Inherited Roth IRAs follow different rules

Not all inherited retirement accounts are treated the same way. Non-spouse beneficiaries of inherited Roth IRAs are generally still subject to the 10-year distribution rule, meaning the account must typically be emptied by the end of year ten. 

However, annual RMD requirements generally do not apply during the 10-year period for inherited Roth IRAs. So, for example, a beneficiary can withdraw the entire balance in a single year, or wait until year 10 to empty the fund.

In addition, qualified Roth IRA distributions are generally tax-free. That distinction can make inherited Roth accounts significantly more flexible from a tax-planning perspective.

Bottom line

Inherited IRA rules have become much more complicated than many beneficiaries realize. For non-spouse heirs who inherited traditional IRAs after 2019, annual distributions may now be required, and failing to take them could result in costly penalties.

The bigger risk may be waiting too long and creating an avoidable tax spike later. If you've inherited an IRA and are subject to the 10-year rule, consider speaking with a tax professional before year-end so your distribution strategy remains aligned with your broader retirement plan and long-term tax goals.