Tax Change for Inherited IRAs in 2025: Starting in 2025, certain non-spousal heirs—including adult children—must begin taking RMDs (Required Minimum Distributions) while emptying inherited IRAs within 10 years of the date of the original owner’s death. In the past, the IRS waived penalties for missed RMDs, but this changed in 2025, according to a recent article from CNBC, “Inherited IRAs have a key tax change for 2025. What to know to avoid a penalty of up to 25%.”
Anyone who inherited an IRA (Individual Retirement Account) needs to review their RMDs to prevent a hefty fine. The change comes as investors are hearing about the “great wealth transfer” expected to transfer more than $100 trillion to heirs through 2048. Much of this wealth will move from parents to adult children, and tax planning should be done well in advance.
Some heirs will do better by depleting their inherited IRAs even before the ten-year timeframe set by the IRS. This depends upon individual tax situations.
Tax Change for Inherited IRAs in 2025: Since 2020, certain inherited accounts have been subject to the ten-year rule. This applies to non-spouse beneficiaries, including adult children, if the original owner reached their own RMD age before they died. There was a lot of confusion about the 10-year rule, which led the IRS to waive penalties for multiple years of missed RMDs on inherited IRAs.
However, in 2024, the IRS released guidelines, and in 2025, heirs must start taking annual RMDs or face a whopping 25% penalty on the amount they should have withdrawn. It may be possible to cut the 25% penalty to 10% by withdrawing the correct amount within two years and filing Form 5329. Talk with your estate planning attorney to be sure this solution will work for you.
Even if RMDs don’t kick in for 2025, most heirs will still need to withdraw the balance within 10 years. This requires planning to avoid a tax hit if the heir waits until the last minute to empty the account. Some people think they can outwit the requirements by taking larger amounts during low-income years. However, there are now tax breaks for seniors so that those tactics could backfire.
Tax Change for Inherited IRAs in 2025: There are many factors to consider when timing inherited IRA withdrawals, including taking RMDs from your own IRAs as well as an inherited IRA. A conversation with an estate planning attorney who understands the interplay of new tax laws is advised before making an expensive mistake.
Hoping this all smooths out by itself is a mistake many people make when it comes to estate planning and taxes; it is not an adequate solution and could lead to a large tax bill.
Reference: CNBC (Oct. 24, 2025) “Inherited IRAs have a key tax change for 2025. What to know to avoid a penalty of up to 25%”