The 10-Year Rule for Inherited Annuities Explained
The 10-year rule requires most non-spouse beneficiaries to empty an inherited retirement account, including an annuity held inside one, by December 31 of the tenth year after the owner's death. If the owner died on or after their required beginning date, annual distributions are also required in years one through nine.
A countdown started the moment you inherited, and nobody called to tell you. That is the strange thing about the 10-year rule. There is no annual statement that says “seven years remaining.” There is no letter from the IRS at the halfway mark. The clock simply runs in the background from the January after the owner’s death until a hard stop on December 31 of the tenth year, and then the whole balance has to be out.
Ten years sounds generous. It is, compared to what many beneficiaries feared when the SECURE Act of 2019 replaced the old lifetime stretch. But ten years is also short enough that ignoring the clock for eight of them turns a manageable tax bill into a bad one, because everything left has to come out in a single year at whatever rate that year happens to hand you.
The good news is that the rule is mechanical. Once you know which clock you are on, when it started, and whether annual amounts are required along the way, the planning is arithmetic rather than guesswork. Here is the whole thing.
What does the 10-year rule actually say?
It says the inherited account must be fully distributed by the end of the tenth calendar year following the year of the owner’s death, and it applies to most non-spouse beneficiaries of retirement accounts. The SECURE Act of 2019 created it for deaths occurring after December 31, 2019, replacing the old rule that let many beneficiaries stretch distributions over their own life expectancy.
The depletion deadline
Who it applies to
What it applies to
What it does not apply to
That last line is the one people miss. The 10-year rule lives in the retirement account rules. A non-qualified annuity is governed by a separate part of the code that Congress did not touch in the SECURE Act, and it carries a 5-year default instead. Our guide to spouse vs non-spouse inherited annuity rules maps which beneficiaries land where.
When does the 10-year clock start?
The clock starts in the calendar year after the year of death, not on the date of death. That one-year offset is why the rule is often described as giving beneficiaries closer to eleven years of runway than ten.
Worked timing example. An owner dies in March 2026. The ten-year period runs across the calendar years 2027 through 2036, and the account must be empty by December 31, 2036. A death in December 2026 produces the exact same deadline, which is why heirs of someone who died late in a year get slightly more calendar time than heirs of someone who died in January.
Nothing pauses the clock. Not probate, not a contested beneficiary designation, not a delay in the insurer transferring the contract. If the paperwork takes eighteen months, you have lost eighteen months of planning runway, not gained an extension.
Do you have to take money out every year, or only by year 10?
It depends on one fact: whether the original owner had already reached their required beginning date. The IRS settled this in final regulations published July 19, 2024, after four years of genuine confusion.
- If the owner died on or after their required beginning date, the beneficiary must take annual distributions in years one through nine and empty the account in year ten. Two obligations, not one.
- If the owner died before their required beginning date, no annual amounts are required. The beneficiary can take nothing for nine years and everything in year ten, if that is the best tax answer.
- For beneficiaries in the first group who inherited in 2020 or later, the IRS confirmed those annual amounts had to begin no later than December 31, 2025.
- For missed annual amounts in 2021 through 2024, the IRS provided relief: no penalty and no requirement to make up the skipped distributions.
- The required beginning date under SECURE 2.0 is April 1 of the year after the owner turns 73 for those born 1951 through 1959, or 75 for those born in 1960 or later.
So the first question to ask the insurer or custodian is not “how much do I have to take,” it is “when was the owner born, and had they started distributions.” Everything else follows from the answer. Our RMD calculator can help you size the annual amount once you know it applies.
Which inherited annuities does the 10-year rule cover?
It covers annuities that live inside a retirement account, and it leaves non-qualified annuities alone. The funding source decides, not the product name on the contract.
Annuity inside a traditional IRA
Covered. The 10-year rule applies to the inherited IRA, and the annuity is simply the asset held inside it.
Read more
Annuity inside a 401(k) or 403(b)
Covered, with plan-specific rules layered on top. Many plans force a faster payout than the tax code requires.
Non-qualified annuity
Not covered. IRC section 72(s) applies: 5 years by default, or life expectancy payments beginning within one year of death.
Read more
Annuity inside a Roth IRA
Covered by the 10-year deadline, but qualified distributions are generally income-tax-free, which changes the strategy completely.
The Roth case deserves a second look. Because there is usually no income tax due, the incentive flips: many Roth beneficiaries deliberately wait until year ten so the account grows tax-free for the entire window. That is the opposite of the right answer on a traditional inherited account.
Ten years is not a grace period. It is a planning window, and the people who treat it as a grace period pay for the difference.
The AnnuaLife Team
Who is exempt from the 10-year rule?
Eligible designated beneficiaries are exempt, and there are five categories. Fall into one and you generally take payments over your own life expectancy instead of racing a deadline.
- Surviving spouse. Can roll the account over or assume it, and generally escapes the beneficiary clock entirely.
- Minor child of the account owner. Life expectancy payments until age 21, then a 10-year clock begins. Grandchildren do not qualify.
- Disabled beneficiary. Under the IRC section 72(m)(7) definition.
- Chronically ill beneficiary. Under the IRC section 7702B(c)(2) definition.
- Beneficiary not more than 10 years younger than the owner. Age gap, not relationship, is what qualifies you.
Non-person beneficiaries go the other direction. An estate or a non-qualifying trust generally faces the 5-year rule when the owner died before the required beginning date, or payments over the owner’s own remaining life expectancy when the owner died on or after it.
10-year rule vs 5-year rule vs life expectancy
Three payout regimes exist side by side, and inherited annuity beneficiaries can encounter any of them depending on the account type and who they are.
| 10-year rule | 5-year rule | Life expectancy payout | |
|---|---|---|---|
| Applies to | Most non-spouse beneficiaries of IRAs and plans, deaths after Dec. 31, 2019 | Non-qualified annuities by default under IRC 72(s); estates and non-qualifying trusts | Eligible designated beneficiaries of retirement accounts; non-qualified beneficiaries who elect in time |
| Deadline | Dec. 31 of the tenth year after death | Dec. 31 of the fifth year after death | Over the beneficiary’s life expectancy |
| Annual amounts required? | Yes in years 1 through 9 if the owner died on or after the required beginning date, per the July 19, 2024 final regulations | No. Any pattern works as long as the balance is zero by the deadline | Yes, recalculated annually from the IRS Single Life Table |
| When you must elect | No election needed | Applies by default | Non-qualified: payments generally must begin within one year of death |
| Typical tax effect | Gain spread over up to ten tax years | Gain compressed into five | Smallest annual taxable amount, longest runway |
The pattern is easy to see. Longer windows mean smaller annual taxable amounts. That is the entire tax argument, and it is why letting the one-year election window lapse on a non-qualified contract can be an expensive piece of procrastination.
What does a missed distribution cost?
A missed required distribution triggers an excise tax, but the SECURE 2.0 Act made it meaningfully cheaper than it used to be.
The penalty is calculated on the amount you should have taken and did not. Correcting it means withdrawing the shortfall and filing Form 5329, and the IRS can waive the tax for reasonable cause. Still, the cheapest version of this problem is the one you never have, which argues for a calendar reminder every December rather than an annual scramble.
How should you spread withdrawals across the window?
Spread them to keep your taxable income out of the brackets you most want to avoid, which usually means taking something every year rather than nothing followed by everything.
Establish the deadline year
Confirm whether annual amounts are required
Map your own income curve
Set a floor and a ceiling
Watch the second-order effects
Rebalance in year eight
None of this is tax advice, and the right pattern depends on your bracket, your state, and income you have not earned yet. Confirm the plan with a qualified tax professional before you set a withdrawal schedule you intend to keep for a decade.
What are the honest drawbacks of the 10-year rule?
The rule genuinely costs beneficiaries money compared with the old stretch, and it is worth naming that plainly rather than dressing it up as flexibility.
- Compression. The same balance that could once be spread over 30 or 40 years now moves through your tax return in ten, which usually means a higher average rate.
- Bracket creep during peak earning years. Many beneficiaries inherit in their fifties, exactly when their own income is highest.
- Uncertainty about future rates. You are committing to a withdrawal schedule against tax law that can change inside the window.
- Loss of continued deferral. Growth that would have compounded untaxed for decades now has ten years at most.
- Administrative friction. Annuity contracts inside inherited IRAs sometimes have surrender schedules that do not line up with the ten-year deadline, forcing a choice between a surrender charge and a missed deadline.
That last point is specific to annuities and worth checking early. A seven-year surrender schedule and a ten-year distribution deadline can coexist peacefully. A ten-year schedule and the same deadline cannot.
How soon are you retiring?
Moving forward
The countdown started without asking you, and it will finish without reminding you. That is the whole character of the 10-year rule: mechanical, quiet, and unforgiving of the year-nine realization. What turns it from a problem into a plan is knowing three facts early, the deadline year, whether annual amounts are required, and what your own income looks like between now and then.
If the inherited money is sitting in an annuity contract, add a fourth: how the contract’s own withdrawal and surrender terms interact with the deadline. That is the piece generic inherited-IRA advice tends to skip. Our guide to inherited annuity taxes covers the tax side in more depth, the annuity tax overview covers the mechanics, and AnnuaLife’s Certified Annuity Advisor match can put you in front of someone who works these contracts regularly.
Want a straight answer from a real person?