Inherited IRA Rules California 2026: What Beneficiaries Need to Know About SECURE Act 2.0

The Retirement Account Inheritance Revolution

If you've inherited an IRA, 401(k), or other retirement account—or expect to—the rules have changed dramatically. The SECURE Act (2019) and SECURE Act 2.0 (2022) eliminated the "stretch IRA" strategy that allowed beneficiaries to take small distributions over their lifetime, potentially decades of tax-deferred growth.

Now, most beneficiaries must empty inherited retirement accounts within 10 years, creating significant tax consequences that require careful planning.

As a Glendale estate planning attorney who helps families navigate retirement account inheritance, I've seen too many beneficiaries make costly mistakes because they didn't understand the new rules. This comprehensive guide explains everything California beneficiaries need to know in 2026.

Understanding the Basics: IRA Inheritance Categories

The SECURE Act created a tiered system based on who inherits the retirement account:

Tier 1: Eligible Designated Beneficiaries (EDBs)

These beneficiaries can still use the stretch IRA (life expectancy distributions):

EDB Category	Definition	Special Rules
Surviving Spouse	Legal spouse at death	Can roll over to own IRA OR use stretch
Minor Child	Deceased's own child under 21	Stretch until 21, then 10-year rule applies
Disabled Individual	Meets IRS disability definition	Stretch over life expectancy
Chronically Ill	Cannot perform 2+ daily living activities	Stretch over life expectancy
Not More Than 10 Years Younger	Within 10 years of deceased's age	Stretch over life expectancy

Tier 2: Designated Beneficiaries (Non-EDBs)

Subject to the 10-year rule:

• Adult children
• Grandchildren
• Siblings
• Friends
• Non-qualifying trusts

Tier 3: Non-Designated Beneficiaries

Must distribute within 5 years:

• Estates
• Charities
• Non-qualified trusts
• No beneficiary named

The 10-Year Rule Explained

When the 10-Year Clock Starts

The 10-year period begins on January 1 of the year following the original owner's death.

Example:

• Original owner dies: March 15, 2026
• 10-year period begins: January 1, 2027
• Account must be emptied by: December 31, 2036

Annual RMDs vs. Lump Sum: It Depends

If original owner died BEFORE their Required Beginning Date (RBD):

• No annual RMDs required
• Just empty the account by end of year 10
• You choose when and how much to withdraw each year

If original owner died AFTER their RBD (started RMDs):

• Annual RMDs are required each year
• Calculate using IRS Single Life Expectancy Table
• Account still must be emptied by year 10

The RBD Age Timeline

Birth Year	RBD Age
Before 1951	70½
1951-1959	73
1960 or later	75

Surviving Spouse: The Most Flexible Options

Surviving spouses have unique options no other beneficiary enjoys:

Option 1: Spousal Rollover

Treat the inherited IRA as your own:

• Roll inherited IRA into your own IRA
• No RMDs until your own RBD (age 73-75)
• Subject to 10% early withdrawal penalty if under 59½
• Resets beneficiary designations

Best for: Younger spouses who don't need the money immediately

Option 2: Inherited IRA (Life Expectancy)

Keep as inherited IRA with stretch:

• RMDs based on your life expectancy (Single Life Table)
• No 10% early withdrawal penalty regardless of age
• Can take more than RMD if needed
• Must name your own beneficiaries

Best for: Spouses under 59½ who may need access before 59½

Option 3: Inherited IRA (10-Year Rule)

Elect the 10-year rule voluntarily:

• No annual RMDs required
• Empty account within 10 years
• No early withdrawal penalty
• Flexibility in timing distributions

Best for: Spouses who want maximum flexibility in distribution timing

Option 4: Disclaim

Refuse the inheritance:

• Must disclaim within 9 months of death
• Assets pass to contingent beneficiary
• Irrevocable decision
• May be useful for estate tax planning

Minor Children: The Temporary Exception

Minor children of the deceased (not grandchildren) get a limited stretch:

How It Works

1. Until age 21: Stretch distributions over life expectancy
2. At age 21: 10-year clock begins
3. By age 31: Account must be emptied

Important Limitations

• Only the deceased's own children qualify (not grandchildren, nieces, nephews)
• Age of majority is 21 for this purpose (not 18)
• Once 10-year period begins, annual RMDs may be required (depending on whether original owner had started RMDs)

Planning for Minor Children

Consider:

• Custodial inherited IRA until child reaches majority
• Trust as beneficiary for control (but adds complexity)
• Education and first-home strategies for timing distributions

Disabled and Chronically Ill Beneficiaries

These EDBs can still stretch distributions over their life expectancy.

Disabled Individual Definition

Must meet IRS disability definition (IRC §72(m)(7)):

• Unable to engage in any substantial gainful activity
• Due to medically determinable physical or mental impairment
• Expected to last indefinitely or result in death

Documentation: Medical certification may be required

Chronically Ill Individual Definition

Must be certified by licensed health care practitioner as:

• Unable to perform at least 2 activities of daily living (eating, toileting, transferring, bathing, dressing, continence) for at least 90 days, OR
• Requiring substantial supervision due to cognitive impairment

Special Needs Planning Intersection

If your beneficiary receives government benefits (SSI, Medi-Cal), inherited IRA distributions could disqualify them. Consider:

• Special Needs Trust as beneficiary
• ABLE Account contributions
• Careful distribution timing

Trusts as IRA Beneficiaries: Proceed with Caution

Naming a trust as IRA beneficiary is common for control purposes, but adds significant complexity.

See-Through Trust Requirements

To be treated as a designated beneficiary (avoiding 5-year rule), the trust must:

1. Be valid under state law
2. Be irrevocable at death (or become irrevocable)
3. Have identifiable beneficiaries
4. Provide trust documentation to IRA custodian

Two Types of See-Through Trusts

Conduit Trust:

• All RMDs must be distributed immediately to beneficiaries
• Trust doesn't accumulate IRA distributions
• Beneficiaries' ages determine RMD calculation
• Simpler but less control

Accumulation Trust:

• Trust can accumulate IRA distributions
• More complex rules for determining applicable distribution period
• May result in compressed income taxation at trust level (37% over ~$15,000)
• More control but potentially more tax

When Trusts Make Sense

Situation	Trust Recommended?
Minor beneficiaries	Yes - Conduit trust
Spendthrift beneficiary	Yes - Accumulation trust
Beneficiary with creditor issues	Yes - Accumulation trust
Disabled/special needs	Yes - Special needs trust
Multiple beneficiaries needing coordination	Maybe
Simple situation, responsible adult beneficiary	Usually no

Trust Taxation Warning

Trusts reach the highest federal tax bracket (37%) at just $15,200 of income (2026). If an accumulation trust holds IRA distributions, the tax hit can be severe compared to distributing to beneficiaries in lower brackets.

Tax Strategies for Inherited IRAs

Strategy 1: Bracket Management

Spread distributions across years to stay in lower tax brackets:

Example:

• You inherit $500,000 IRA
• Your taxable income is $80,000 (22% bracket, tops at ~$100,000)
• Taking $50,000/year keeps you in the 22% bracket
• Taking $100,000 in some years pushes you to 24% or 32%

Strategy 2: Roth Conversions from Your Own Accounts

If you're taking taxable inherited IRA distributions, consider:

• Reducing contributions to your own traditional IRA/401(k)
• Converting some of your own IRA to Roth in lower-income years
• Balances out your lifetime tax picture

Strategy 3: Timing Around Income Fluctuations

Take larger distributions in low-income years:

• Job loss or sabbatical
• Early retirement before Social Security
• Business loss years
• Large deduction years (medical expenses, charitable gifts)

Strategy 4: Charitable Strategies

If you're charitably inclined:

• Qualified Charitable Distributions (QCDs) - Must be 70½+, only from your own IRA
• Donate appreciated assets instead, take IRA distributions to replace
• Charitable Remainder Trust strategies for large inherited IRAs

Strategy 5: State Tax Considerations

California taxes retirement distributions as ordinary income. Consider:

• Timing distributions around California residency
• If moving to a no-income-tax state, timing distributions after the move
• California may still tax if you were a resident when inherited

Inherited 401(k) vs. Inherited IRA: Key Differences

401(k) Special Considerations

Factor	401(k)	IRA
Must roll to inherited IRA?	Often required by plan	Already an IRA
Investment options	Limited to plan offerings	Unlimited
Creditor protection	ERISA protection	State law varies
Fees	Plan fees may be high	You choose custodian
Required distributions	Same SECURE Act rules	Same rules

Recommendation

In most cases, rolling an inherited 401(k) to an inherited IRA provides:

• More investment options
• Lower fees
• More flexible distribution options
• Easier beneficiary designations

Common Mistakes to Avoid

Mistake 1: Missing RMDs

The Problem: Not realizing annual RMDs are required when the original owner had started RMDs

The Penalty: 25% of the amount that should have been withdrawn (10% if corrected promptly)

Solution: Determine immediately whether annual RMDs apply

Mistake 2: Rolling Over as Non-Spouse

The Problem: Non-spouse beneficiary tries to roll inherited IRA into their own IRA

The Result: Entire IRA becomes taxable immediately as a distribution

Solution: Keep inherited IRA in separate inherited IRA account titled properly

Mistake 3: Improper Account Titling

Correct Title Format: "[Deceased Owner Name] IRA (deceased [date]) FBO [Beneficiary Name]"

Example: "John Smith IRA (deceased 03/15/2026) FBO Jane Smith"

Wrong: Retitling solely in beneficiary's name (triggers full taxation)

Mistake 4: Missing the 10-Year Deadline

The Problem: Beneficiary assumes they have forever, then faces massive tax bill in year 10

Solution: Create a distribution plan early; don't wait until year 10

Mistake 5: Not Considering State Taxes

The Problem: Planning only around federal taxes, ignoring California's high income tax

Solution: Factor California's 9.3%-13.3% rates into distribution planning

Required Documentation for Inherited IRAs

When you inherit an IRA, gather these documents:

From the Deceased's IRA Custodian

• Death certificate (certified copy)
• Beneficiary designation form (request copy)
• Account statements
• Custodian's inherited IRA forms
• Information on whether RMDs had begun

For Your Records

• Your identification
• Your Social Security number
• Chosen custodian for inherited IRA (if transferring)
• New beneficiary designation form (for your inherited IRA)

If Trust Is Beneficiary

• Complete copy of trust document
• All amendments
• Death certificate
• Trustee certification

Step-by-Step: What to Do When You Inherit an IRA

Step 1: Notify the Custodian (Within 30 Days)

Contact the IRA custodian to report the death and request:

• Required forms
• Copy of beneficiary designation
• Information about the account

Step 2: Determine Your Category

• Are you an Eligible Designated Beneficiary?
• Did the owner die before or after their RBD?
• Is there a trust involved?

Step 3: Decide on Your Option (Within Year 1)

• Spouse: Rollover, inherited IRA, or 10-year rule?
• Non-spouse EDB: Life expectancy or 10-year rule?
• Non-EDB: 10-year rule applies automatically

Step 4: Retitle the Account Properly

Ensure proper inherited IRA titling (see above)

Step 5: Calculate First Year RMD (If Applicable)

If RMDs are required, calculate and take by December 31 of year following death

Step 6: Create a Distribution Plan

Work with a financial advisor and tax professional to optimize distributions over the available period

Step 7: Name Your Own Beneficiaries

Complete a new beneficiary designation for your inherited IRA

California-Specific Considerations

California Income Tax

• All IRA distributions taxed as ordinary income
• Top rate: 13.3% (over $1 million)
• Mental Health Services Tax: Additional 1% over $1 million
• No special treatment for inherited IRAs

Community Property

If the deceased was married and lived in California:

• IRA may be community property
• Surviving spouse may have rights regardless of beneficiary designation
• Complex analysis may be needed

California Residency

If you move to/from California:

• California may tax distributions earned while a resident
• "Sourcing" rules are complex
• Consider timing of distributions around moves

Frequently Asked Questions

What is the 10-year rule for inherited IRAs?

Under SECURE Act 2.0, most non-spouse beneficiaries must withdraw all funds from an inherited IRA within 10 years of the original owner's death. The 10-year period begins January 1 of the year following death. If the original owner had already started Required Minimum Distributions (died after their Required Beginning Date), the beneficiary must also take annual RMDs during those 10 years, calculated using IRS life expectancy tables. The account must be completely emptied by December 31 of the 10th year, regardless of whether annual RMDs were required.

Who is exempt from the 10-year rule for inherited IRAs?

Five categories of Eligible Designated Beneficiaries (EDBs) can still use the "stretch IRA" and take distributions over their life expectancy: (1) surviving spouses, who also have the option to roll the IRA into their own; (2) minor children of the deceased (not grandchildren) until they reach age 21, at which point the 10-year clock starts; (3) individuals who meet the IRS definition of disabled; (4) chronically ill individuals certified by a healthcare practitioner; and (5) beneficiaries who are not more than 10 years younger than the deceased owner.

Do I have to take annual RMDs from an inherited IRA under SECURE Act 2.0?

It depends on whether the original IRA owner died before or after their Required Beginning Date (RBD). The RBD is generally April 1 following the year the owner turned 73 (or 75 for those born in 1960 or later). If the owner died AFTER starting RMDs, you must take annual RMDs during the 10-year period, calculated using the IRS Single Life Expectancy Table. If they died BEFORE their RBD, you have flexibility—you only need to empty the account by the end of year 10, with no required annual distributions. This allows you to time distributions for tax efficiency.

Can I roll an inherited IRA into my own IRA?

Only surviving spouses have this option. A surviving spouse can roll an inherited IRA into their own IRA (or elect to treat it as their own), which delays RMDs until their own Required Beginning Date and resets the beneficiary designations. This is often the best option for younger spouses who don't need the money immediately. Non-spouse beneficiaries absolutely cannot do a rollover into their own IRA—attempting to do so triggers immediate taxation of the entire account. Non-spouse beneficiaries must keep the inherited IRA in a separate inherited IRA account with proper titling.

What happens if I miss an RMD from an inherited IRA?

Missing a Required Minimum Distribution triggers an excise tax penalty. Under current rules, the penalty is 25% of the amount that should have been withdrawn but wasn't. However, if you discover the error and correct it within the IRS correction window (generally by the end of the second tax year following the year of the missed RMD), the penalty is reduced to 10%. To correct the error, take the missed distribution and file Form 5329 with your tax return explaining the reasonable cause for the miss and showing you've corrected it. Consult a tax professional immediately if you've missed an RMD—timely correction can save thousands in penalties.

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Plan Your Inherited IRA Strategy

Inheriting a retirement account is both a gift and a responsibility. With the SECURE Act's 10-year rule, the tax implications are more significant than ever. Proper planning can save you tens of thousands of dollars in unnecessary taxes.

We help California beneficiaries with:

• Determining your beneficiary category and applicable rules
• Calculating Required Minimum Distributions
• Developing tax-efficient distribution strategies
• Coordinating inherited IRAs with overall estate and tax planning
• Trust modifications for retirement account beneficiaries

Don't let tax mistakes erode your inheritance. Call (818) 291-6217 or visit our contact page to schedule a consultation.

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About the Author

Rozsa Gyene (State Bar No. 208356) is a California estate planning and trust administration attorney serving Glendale, Burbank, Pasadena, and throughout Los Angeles and Santa Barbara Counties. With extensive experience in retirement account planning and trust administration, Rozsa helps California families navigate the complex intersection of estate planning and tax law.

Office Location: 450 N Brand Blvd, Suite 600, Glendale, CA 91203

Phone: (818) 291-6217

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Disclaimer: This article provides general information about inherited IRA rules and should not be construed as legal or tax advice. Tax laws are complex and change frequently. The information in this article reflects rules in effect as of January 2026. Consult with qualified legal and tax professionals about your specific circumstances before making decisions about inherited retirement accounts.

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