Key Definitions
Before reviewing distribution options, these four terms apply throughout this page.
Eligible Designated Beneficiary (EDB)
A beneficiary who qualifies for the life expectancy option. Includes a surviving spouse, minor children of the IRA owner, individuals not more than 10 years younger, the same age, or older than the IRA owner, and chronically ill or disabled individuals. This page focuses on non-spouse EDBs.
Required Beginning Date (RBD)
The date by which the IRA owner must begin taking RMDs, generally April 1 after the year they attain their RMD Age. Whether the IRA owner dies before, on, or after their RBD determines if annual RMDs must be taken during the 10-year term.
RMD Age
The IRA owner’s year of birth determines their RMD Age. Because this age has changed in recent years and may change again, always confirm the RMD Age applicable to the owner’s year of birth.
Single Life Table (SLT)
The IRS table used to calculate annual RMDs for Inherited IRA beneficiaries under the life expectancy (LX) option. The divisor is generally based on the beneficiary’s age in the year after the owner’s death, reduced by one each year thereafter.
Some distribution methods help preserve an Inherited IRA’s tax-advantaged status, while others may steer a beneficiary into unintended consequences. Understanding the options matters – once a distribution is taken, a non-spouse beneficiary cannot roll it over to the Inherited IRA or their own IRA within 60 days.
Who Qualifies as an Eligible Designated Beneficiary?
There are three beneficiary categories when the IRA owner dies after 2019: Non-Designated Beneficiary (NDB), Designated Beneficiary (DB), and Eligible Designated Beneficiary (EDB). For surviving spouse rules, see our Surviving Spouse as IRA Beneficiary insight. The EDB category and 10-year rule didn’t exist before 2020 — non-spouse and qualified trust beneficiaries who inherited before 2020 generally use the life expectancy option.
A non-spouse beneficiary is considered an EDB if they are one of the following:
- A minor child of the IRA owner, or their qualified trust (QT), who has not surpassed age 21
- An individual not more than 10 years younger (based on dates of birth), the same age, or older than the IRA owner
- An individual who is chronically ill or disabled
- The primary beneficiary of a QT who is a chronically ill/disabled individual
EDB Distribution Options by Beneficiary Type
| EDB Type | Life Expectancy (LX) | 10-Year Rule | 10-Year Rule with RMDs | Lump-Sum | Disclaim |
|---|---|---|---|---|---|
| Minor child of the IRA owner, or their qualified trust 1,2, who has not surpassed age 21. After age 21, RMDs are taken over a 10-year term. | |||||
| Owner died before RBD | ✓ | ✓ | ✓ | ✓ | |
| Owner died on/after RBD | ✓ | ✓ | ✓ | ✓ | |
| Chronically ill or disabled individuals, or their qualified trust1,2 | |||||
| Owner died before RBD | ✓ | ✓ | ✓ | ✓ | |
| Owner died on/after RBD | ✓ | ✓ | ✓ | ✓ | |
| Individuals not more than 10 years younger, the same age, or older than the IRA owner | |||||
| Owner died before RBD | ✓ | ✓ | ✓ | ✓ | |
| Owner died on/after RBD | ✓ | ✓ | ✓ | ✓ | |
1. The duration an Inherited IRA can remain open depends on several factors, including the QT type (accumulation or conduit), the primary beneficiary, and the number of primary beneficiaries. It is essential for the trustee to consult with an attorney to understand the specific trust distribution options available.
2. In some instances an entity may be able to disclaim.
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Life Expectancy Option (Stretch IRA Strategy)
Under the Life Expectancy Option, often called the Stretch IRA strategy3, non-spouse beneficiaries take annual RMDs beginning the year after the IRA owner died. This option applies to both Inherited Traditional and Roth IRAs.
To calculate annual RMDs, the EDB uses:
- A divisor from the SLT
- The prior year-end IRA value
- The term certain method – subtracting one from the original divisor each year
Key rules to note:
- The initial divisor is generally based on the EDB’s age as of their birthday in the year following the owner’s death.
- If a QT is the beneficiary, the divisor is based on the age of the oldest trust beneficiary.
- If the IRA owner died on or after their RBD, and their remaining life expectancy is longer than the beneficiary’s, the owner’s divisor is used instead – calculated using the owner’s age at death, with one subtracted annually.
No IRC 10% Additional Tax
Inherited IRA distributions are not subject to the 10% additional tax on early or pre-59½ distributions, regardless of the beneficiary’s age. These distributions are reported on IRS Form 1099-R using a death distribution code.
RMD Formulas
Non-spouse EDB:
Non-spouse EDB older than the IRA owner who died on/after RBD:
3. The “stretch” IRA is not a specific type of IRA, but a strategy to extend an IRA’s benefits beyond the IRA owner’s lifetime.
Minor Children: The Hybrid Beneficiary
When a minor child inherits an IRA from a parent, they become a hybrid beneficiary subject to EDB, then DB, distribution rules.
EDB Phase: Through Age 21
The minor child is treated as an EDB. Annual RMDs are required and are calculated using the SLT and term certain method.
DB Phase: The 10-Year Term
The year after the beneficiary turns 21, they transition to Designated Beneficiary (DB) status. The Inherited IRA must be distributed by the time they turn age 31. RMDs continue during this 10-year term.
This two-phase structure, starting with the life expectancy method and transitioning to the 10-year rule, is reserved exclusively for minor children of the IRA owner. It reflects their status as EDBs through age 21, after which they proceed as a DB.
The 10-Year Rule
While the 10-Year Rule is available to EDBs, it is often the least favorable option. Under this rule, if the IRA owner died on or after their RBD, RMDs are necessary for years 1–9. If the IRA owner died before RBD, nothing is required until year 10. In either scenario, the Inherited Traditional or Roth IRA must be fully emptied by the end of the 10th year after the original IRA owner’s death.
This option should be carefully weighed before selecting it.
Missing a required distribution triggers a 25% excise tax. The tax applies to a missed annual RMD and to any balance remaining after a beneficiary’s distribution term ends. It may be reduced to 10% if the shortfall is addressed within the two-year correction window.
Lump-Sum Distribution
Some beneficiaries choose to empty the Inherited IRA in a single year. While this satisfies distribution requirements, it comes with a potential cost: the full taxable amount is included in income for that year, which may push the beneficiary into a higher tax bracket.
The Disclaimer Option
A beneficiary may choose to disclaim all or a portion of an Inherited IRA — essentially refusing the inheritance. This decision must generally be made within nine months of the IRA owner’s death. Minor beneficiaries have nine months after age 21. Specific requirements under the IRC must also be met for the disclaimer to be valid.
The beneficiary cannot direct where the disclaimed assets go. The IRA custodian will follow the instructions the IRA owner provided on the beneficiary designation form. If there are no other named beneficiaries, the IRA custodial agreement’s default provisions determine who inherits.
Before completing any paperwork to claim an inheritance: Beneficiaries are making decisions with significant tax and financial implications while managing an emotional loss. Before taking any action, beneficiaries should learn the rules and speak with their financial, tax, and legal professionals.
About the Author
Cathleen Davis-Whitmore is Chief Compliance and Education Officer at Financial Cloud Works, known as The IRA Oracle. She specializes in helping financial professionals navigate IRA contribution, distribution, and beneficiary planning rules.
A two-page reference covering the three beneficiary categories, the distribution option matrix for each, and how the life expectancy option applies to non-spouse and qualified trust beneficiaries who inherited before 2020.
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