The stakes are higher for missing Required Minimum Distributions.

IRAs are wonderful tools when saving for retirement.

They can also be cumbersome as an inherited asset.

Understatement.

While they were once a great tool for sharing wealth with the next generation through "stretch" IRA planning, federal tax law changes now require heirs who are not the spouse of the deceased IRA owner to withdraw all funds within 10 years of the date the original owner died.

According to a recent CNBC article titled "Inherited IRAs have a key tax change for 2025. What to know to avoid a penalty of up to 25%," these non-spousal heirs are facing higher pressure to make the required withdrawals.

Missing Required Minimum Distributions from an inherited IRA can result in significant penalties.

Why?

While the IRS previously waived penalties for missed Required Minimum Distributions, it released revised guidelines in 2024 stating it will begin charging these penalties in 2025.

How high are these penalties?

The penalty for heirs who fail to take the RMD for the year is 25 percent of the amount they should have withdrawn.

Yikes!

What does this mean for heirs?

They must review their inherited IRAs to make sure they take the appropriate RMD for the year.

If they miss the Required Minimum Distributions for the year, they may be able to file Form 5329 and make the required withdrawals within 2 years to reduce the penalty to 10 percent.

An experienced estate planner should be able to advise whether this solution is an option for the heir.

Why has the IRS made these changes?

The revised guidelines come from the anticipated "great wealth transfer."

This refers to the expected transfer of more than $100 trillion to heirs over the next 30 years.

Because most of these inheritances will flow from parents to adult children, tax planning should be a priority in estate planning.

Even without the Required Minimum Distribution penalties, beneficiaries of inherited IRAs may still face tax burdens under the ten-year rule.

Because the ten-year rule requires non-spousal beneficiaries to drain the IRA within 10 years of the death of the original owner, if the owner was subject to RMDs, heirs could face higher taxes due to withdrawals being counted as income.

Although IRAs have been subject to the ten-year drawdown rule since 2020, there has been confusion around its meaning and practical implications.

This confusion led the IRS to waive penalties until this year.

For adult heirs of inherited IRAs, taxes can be reduced through strategic planning.

Some may find that withdrawing all funds before the ten-year mark benefits them.

Others may try to take greater withdrawals during low-income years.

Although seemingly wise, it may backfire for seniors who receive tax breaks.

Because there are numerous factors to consider when timing distributions from an inherited IRA, working with your experienced estate planning attorney or financial planner can help you navigate the tax laws to make wise choices.

Handling required minimum Distributions from inherited IRAs should be approached with professional support.

This post is for informational purposes only and does not provide legal advice. You should consult an attorney for advice on any specific issue or problem. Nothing herein creates an attorney-client relationship between Harvest Law KC and the reader.

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%"