TL;DR — Key Takeaways
- The inherited ira 10 year rule comes in two versions, and the standard summary describes only one of them. “No annual withdrawals, just empty it by year ten” is correct where the account owner died before their required beginning date. It is wrong where the owner died on or after that date.
- Where the owner died on or after the required beginning date, annual distributions continue AND the tenth-anniversary deadline applies. The 2024 final regulations say it directly: the requirement to take an annual distribution “continues to apply for every distribution calendar year until the employee’s interest is fully distributed,” and if the ten-year rule applies “then the distributions also must satisfy” the ten-year limit.
- Two dates in the year after death quietly decide the whole payout. Beneficiaries are fixed as of September 30 of the year following death, and where a trust is the beneficiary the trust documentation must reach the plan administrator by October 31 of that same year.
- One non-individual beneficiary can spoil the whole designation. A person that is not an individual “is not a designated beneficiary,” and if one is named “the employee will be treated as having no designated beneficiary, even if individuals are also designated as beneficiaries.”
- For this purpose a minor child reaches majority at 21, not 18. The regulation is one sentence: “An individual reaches the age of majority on the individual’s 21st birthday.”
The Direct Answer
The ten-year rule requires a designated beneficiary who is not an eligible designated beneficiary to empty the account by the end of the calendar year containing the tenth anniversary of the owner’s death. Whether annual withdrawals are also required inside those ten years depends on whether the owner died before or on or after their required beginning date.
The Inherited IRA 10 Year Rule Has Two Versions, and One Date Decides Which
The date is the account owner’s required beginning date – broadly, April 1 of the year after the year the owner reaches the applicable age, which Internal Revenue Code section 401(a)(9)(C)(v) sets at 73 for someone who turns 72 after 2022 and 73 before 2033, and 75 for someone who turns 74 after 2032.
Everything about the ten-year rule turns on which side of that date the owner died, and almost no consumer guidance says so.
If the owner died before the required beginning date, and the beneficiary is a designated beneficiary who is not an eligible designated beneficiary, the ten-year rule is exactly what the summaries describe. Treasury Regulation section 1.401(a)(9)-3(c)(3): distributions are satisfied “if the employee’s entire interest is distributed by the end of the calendar year that includes the tenth anniversary of the date of the employee’s death.” The regulation gives its own example – an owner who died in 2021 must have the account emptied by the end of 2031. There is no annual distribution requirement in that paragraph. Withdraw nothing for nine years and everything in year ten, and the rule is satisfied.
If the owner died on or after the required beginning date, the answer changes, and the regulation is explicit. Section 1.401(a)(9)-5(d)(1)(i) provides that where the owner “dies after distribution has begun … distributions must satisfy section 401(a)(9)(B)(i),” and then: “The requirement to take an annual distribution in accordance with the preceding sentence continues to apply for every distribution calendar year until the employee’s interest is fully distributed.” It goes on: where section 401(a)(9)(H) applies, distributions must also satisfy the 10-year rule or, for an eligible designated beneficiary, section 401(a)(9)(B)(iii).
Both, not either. Annual withdrawals every year, and the account empty by the end of the tenth-anniversary year.
| Owner died BEFORE the required beginning date | Owner died ON OR AFTER it | |
|---|---|---|
| Annual withdrawals inside the ten years | Not required | Required every year |
| Empty by end of the tenth-anniversary year | Required | Required |
| Where it comes from | Reg. 1.401(a)(9)-3(c)(3) | Reg. 1.401(a)(9)-5(d)(1)(i) and (e)(2) |
| What sizes the annual amount | Not applicable | The greater of the beneficiary’s remaining life expectancy or the owner’s |
That last row is worth a second look. Where annual distributions are required, section 1.401(a)(9)-5(d)(1)(ii) sets the divisor as “the greater of – (A) The designated beneficiary’s remaining life expectancy; and (B) The employee’s remaining life expectancy.” A younger beneficiary uses their own longer life expectancy, which produces a smaller annual minimum – and then still has to clear the account by year ten.
Two dates about the rule itself, and they are different dates. The ten-year rule reaches owners who died on or after January 1, 2020 under the SECURE Act, per section 1.401(a)(9)-1(b)(2)(i), with January 1, 2022 for governmental plans and some collectively bargained plans. The 2024 final regulations that resolved the annual-distribution question apply “for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2025.” So the statute and the regulations do not share an effective date, and secure act beneficiary rules discussions written between 2020 and 2024 were describing an unsettled question as though it were settled.
And a clean exception worth knowing: under section 1.401(a)(9)-3(a)(2), a designated Roth account requires no distributions during the owner’s life, and on the owner’s death “that employee is treated as having died before his or her required beginning date.” So an inherited Roth account never has the annual-withdrawal-inside-ten-years problem.
Who Qualifies as an Eligible Designated Beneficiary?
Five categories, fixed at the date of death, and one of them expires.
Internal Revenue Code section 401(a)(9)(E)(ii) lists them: the surviving spouse; a child of the owner “who has not reached majority”; someone disabled within the meaning of section 72(m)(7); a chronically ill individual under section 7702B(c)(2), on a certification that the period of inability “is an indefinite one which is reasonably expected to be lengthy in nature”; and “an individual not described in any of the preceding subclauses who is not more than 10 years younger than the employee.”
The statute adds: “The determination of whether a designated beneficiary is an eligible designated beneficiary shall be made as of the date of death of the employee.” A beneficiary who becomes disabled two years later is not an eligible designated beneficiary.
An eligible designated beneficiary generally gets life expectancy payments rather than a ten-year window. Section 1.401(a)(9)-3(c)(4) requires those annual distributions to “commence by the end of the calendar year following the calendar year in which the employee died,” and the requirement “continues to apply for all subsequent calendar years until the employee’s interest is fully distributed.”
Three limits on that advantage, all of them commonly missed.
The minor child category runs out, and majority here means 21. Section 1.401(a)(9)-4(e)(3) is a single sentence: “An individual reaches the age of majority on the individual’s 21st birthday.” That is a federal 21 for this purpose, not California’s 18. When the child reaches 21, section 401(a)(9)(E)(iii) starts a ten-year clock from that date, and section 1.401(a)(9)-5(e)(4) sets the deadline as the year containing the tenth anniversary of the day the child reaches majority. Practically: life expectancy payments to 21, then out by 31.
Mixing beneficiaries destroys the status. Section 1.401(a)(9)-4(e)(2)(i): if the owner has more than one designated beneficiary “and at least one of those beneficiaries is not an eligible designated beneficiary, then the employee is treated as not having an eligible designated beneficiary.” There is a carve-out in subdivision (e)(2)(ii) where a beneficiary qualifies as the owner’s minor child, and separate-account treatment is addressed in a regulation not read for this article – which is exactly why this belongs in a conversation with counsel rather than on a beneficiary form.
The advantage does not pass down. Section 401(a)(9)(H)(iii): when an eligible designated beneficiary dies before the interest is fully distributed, the exception does not apply to that person’s own beneficiary, and the remainder “shall be distributed within 10 years after the death of such eligible designated beneficiary.” Section 1.401(a)(9)-5(e)(3) fixes the deadline at the tenth anniversary of the eligible designated beneficiary’s death.
Should a Trust Ever Be Named as an IRA Beneficiary?
Sometimes, for reasons that have nothing to do with taxes – and only if the trust is drafted to survive the look-through rules.
Start with the default rule, because it is harsh. Section 1.401(a)(9)-4(b): a person that is not an individual, such as the estate, “is not a designated beneficiary,” and naming one means the employee is treated as having no designated beneficiary even if individuals are also named.
A trust is not an individual. The look-through in section 1.401(a)(9)-4(f) is what rescues it. If the trust meets four requirements, certain beneficiaries of the trust “and not the trust itself” are treated as the owner’s designated beneficiaries, and the trust is called a see-through trust. The four requirements:
- Valid under state law, “or would be but for the fact that there is no corpus.”
- Irrevocable, or irrevocable by its terms “upon the death of the employee.”
- Beneficiaries identifiable from the trust instrument.
- The paragraph (h) documentation requirements satisfied – see the deadline section below.
Then the regulation divides see-through trusts in two. A conduit trust is one whose terms provide that all distributions from the plan “will, upon receipt by the trustee, be paid directly to, or for the benefit of, specified trust beneficiaries.” An accumulation trust is “any see-through trust that is not a conduit trust.”
That distinction is where the planning succeeds or fails, because of who gets counted. Under section 1.401(a)(9)-4(f)(3)(i), the beneficiaries treated as the owner’s include any beneficiary who could receive plan amounts not contingent on another beneficiary’s death – and, for an accumulation trust, beneficiaries who could receive amounts that were not distributed to the first group. So in an accumulation trust the remainder beneficiaries are counted. A charity named as remainder beneficiary is not an individual. An older sibling named as remainder beneficiary can be more than ten years older than the owner. Either one can cost the trust its designated beneficiary status or its eligible designated beneficiary status, and the family will not find out until after the death that created the problem.
So the leaving a retirement account to a trust california decision comes down to whether there is a reason strong enough to accept that complexity. Reasons that do qualify:
- A beneficiary with a disability, where a properly drafted trust preserves needs-based benefits. The disabled and chronically ill categories are themselves eligible designated beneficiary categories.
- A minor child, where nobody wants a 21-year-old to receive an account outright.
- A beneficiary who cannot manage money, or is exposed to creditors or a divorce.
- A blended family, where the owner wants the survivor to have income but the children to receive the remainder.
Reasons that do not: a general preference for keeping things in the trust, or a belief that the trust improves the tax outcome. It does not. The default position for a competent adult beneficiary is a direct designation on the ira beneficiary designation california families keep with the custodian, and the trust route should have a named purpose.
Two Deadlines in the Year After Death That Decide the Payout
Both fall in the calendar year following the year of death, and neither is on any custodian’s welcome letter.
September 30 – the beneficiaries are fixed. Section 1.401(a)(9)-4(c)(1) counts a person as a beneficiary if they were designated as of the date of death and none of three events has occurred “by September 30 of the calendar year following the calendar year of the employee’s death.” The three events, from subdivision (c)(2), are that the beneficiary predeceased the owner; that they are treated as having predeceased under a simultaneous death provision or “pursuant to a qualified disclaimer satisfying section 2518 that applies to the entire interest” to which they were entitled; or that they “receive[d] the entire benefit to which the beneficiary is entitled.”
That is a planning window, not just a deadline. A non-individual beneficiary that is cashed out in full before September 30 drops out of the count. A beneficiary who disclaims the entire interest by a qualified disclaimer drops out. Either move can convert an estate with “no designated beneficiary” into one with a designated beneficiary – and the window closes nine months after the year of death.
October 31 – the trust documentation is due. Where a trust is the beneficiary, section 1.401(a)(9)-4(h)(1)(ii) requires the paragraph (h)(3) documentation to be satisfied “no later than October 31 of the calendar year following the calendar year that includes the employee’s date of death.” Requirement four of the see-through test is not a drafting requirement. It is a filing requirement with a date, and it lands on a successor trustee who may not know the trust is an IRA beneficiary at all.
How Does a Surviving Spouse’s Treatment of an Inherited IRA Differ?
Substantially, and in the direction of more choice rather than less.
A surviving spouse is an eligible designated beneficiary under section 401(a)(9)(E)(ii)(I), so life expectancy payments are available. Beyond that the statute and regulations give a spouse three things no other beneficiary gets.
A delay. Section 1.401(a)(9)-3(d): where “the employee’s surviving spouse is the employee’s sole beneficiary,” commencement of distributions “may be delayed until the end of the calendar year in which the employee would have attained the applicable age.” A spouse widowed at 52 by a spouse who would have turned 73 in 2041 does not start distributions in 2027.
An election to be treated as the employee. Section 401(a)(9)(B)(iv) lets a surviving spouse elect to be treated, for the distribution regulations, as if the spouse were the employee, with commencement no earlier than when the deceased spouse would have attained the applicable age. The election must be made as the Secretary prescribes, with timely notice to the plan administrator, and once made “may not be revoked except with the consent of the Secretary.”
A restart on death. Section 1.401(a)(9)-3(e)(1): if the sole-beneficiary spouse dies before distributions have commenced under the delay, the five-year rule, the ten-year rule and the life expectancy rules “are to be applied as if the surviving spouse were the employee,” substituting the spouse’s date of death for the owner’s. In effect the clock resets and the spouse’s own beneficiaries are measured from the spouse.
Two limits on that. Subdivision (e)(2): if the surviving spouse remarries and then dies before distributions begin, the delay in subdivision (d) is not available to that spouse’s own surviving spouse. And these rules turn on the spouse being the sole beneficiary – naming a spouse and a child together forfeits the sole-beneficiary treatment.
What this article does not address: the rollover of an inherited account into the surviving spouse’s own IRA, which is a common and often superior route. The Internal Revenue Code sections governing IRAs themselves were not read for this article, and no rollover mechanics, deadlines or eligibility conditions are asserted here.
When to Bring Counsel In
Before the beneficiary form is signed, and within weeks of a death.
The before-signing case is the stronger one, because the form is the plan. A trust named as beneficiary without the four look-through requirements in view, an accumulation trust with a charitable remainder beneficiary, a spouse named alongside a child, an estate named as a fallback – each of those is a decision made in ninety seconds on a custodian’s website that determines how fast a seven-figure account has to be paid out.
The after-death case is about the two dates. September 30 and October 31 of the year following death are the only windows in which a designation can still be improved – by a cash-out, by a qualified disclaimer, or by getting trust documentation to the administrator – and they pass while a family is still sorting through paperwork.
This article does not address the income tax consequences of a distribution, in California or federally. The Internal Revenue Code provisions governing how a distribution is taxed, and California’s treatment of it, were not researched here. What the regulations settle is how fast the money must come out and to whom, and that is the variable planning can actually change; the tax computation on the resulting income belongs to a tax adviser.
Related reading includes why an IRA beneficiary form overrides your will, how a special needs trust protects a loved one, planning more deeply for a beneficiary with a disability, disclaiming an inheritance in California, and when to update an estate plan.
Work with Bay Legal
Bay Legal, PC advises California families on retirement account beneficiary designations, see-through and conduit trust drafting, eligible designated beneficiary analysis, and the post-death windows that still allow a designation to be improved. If you are naming a beneficiary or administering an inherited account, call (650) 668-8000 in Northern California or (213) 668-8000 in Southern California, or schedule a consultation at https://baylegal.com/contact-us/.
Frequently Asked Questions
What is the 10-year rule for inherited retirement accounts?
A designated beneficiary who is not an eligible designated beneficiary must have the account fully distributed by the end of the calendar year containing the tenth anniversary of the owner’s death. Whether annual withdrawals are also required inside those ten years depends on one date: if the owner died before their required beginning date, none are required. If the owner died on or after it, the 2024 final regulations require an annual distribution every year plus the tenth-anniversary deadline. The rule reaches deaths on or after January 1, 2020.
Who qualifies as an eligible designated beneficiary?
Five categories under Internal Revenue Code section 401(a)(9)(E)(ii), determined at the date of death: a surviving spouse; the owner’s child who has not reached majority, which here is the 21st birthday; someone disabled; a chronically ill individual with the required certification; and anyone not more than ten years younger than the owner. Status is fixed at death, so later disability does not qualify. Naming one beneficiary who is not eligible generally means the owner is treated as having no eligible designated beneficiary.
Should a trust ever be named as an IRA beneficiary?
Only for a named reason – a beneficiary with a disability, a minor, a beneficiary who cannot manage money or faces creditors, or a blended family. A trust is not an individual, so it must satisfy the look-through rules: valid under state law, irrevocable at the owner’s death, beneficiaries identifiable from the instrument, and documentation delivered on time. Accumulation trusts count remainder beneficiaries, so a charity or a much older one can destroy the designation. For a competent adult, a direct designation is usually better.
What are the tax consequences of the wrong beneficiary designation?
Structurally, the consequence is compression: a designation that fails the rules can force the entire account out over a much shorter period, or trigger annual distributions that were not expected, which concentrates taxable income into fewer years. Naming an estate or a non-qualifying trust can mean the owner is treated as having no designated beneficiary at all. This article does not address how a distribution is taxed federally or in California, because those provisions were not researched here – that computation belongs to a tax adviser.
How does a surviving spouse’s treatment of an inherited IRA differ?
A spouse is an eligible designated beneficiary and gets three things no other beneficiary does. As sole beneficiary, commencement may be delayed until the end of the year the owner would have reached the applicable age. The spouse may elect to be treated as the employee for the distribution rules, irrevocably absent the Secretary’s consent. And if the sole-beneficiary spouse dies before distributions commence, the rules apply as if the spouse were the employee. Naming a spouse alongside a child forfeits sole-beneficiary treatment.
