Rules for Inheriting a Retirement Account from a Sibling
When inheriting an IRA or 401(k) from a sibling, the rules depend heavily on age difference and IRS guidelines under the SECURE Act. This article explains the 10-year rule, Eligible Designated Beneficiary exception, and Required Minimum Distribution requirements. It also outlines tax-efficient withdrawal strategies for both pre-tax and Roth accounts. Understanding these rules can help reduce taxes and maximize long-term value.
By Michael Ruger, CFP®
Partner and Chief Investment Officer at Greenbush Financial Group
When you inherit a retirement account , whether it’s a 401(k), Traditional IRA, or Roth IRA, the rules depend heavily on who you inherited the account from. The rules for inheriting a retirement account from a sibling are very different from inheriting from a spouse, parent, or grandparent, and the distribution rules can have major tax consequences if not handled properly.
In this article, we’re going to walk through the key rules and planning strategies, including:
The 10-year rule for inherited retirement accounts
The age exception for siblings within 10 years
Required Minimum Distribution (RMD) rules
Tax strategies for inherited IRAs and 401(k)s
The 10-Year Rule
The IRS changed the rules for inherited retirement accounts starting in 2020 under the SECURE Act. For most non-spouse beneficiaries, inherited retirement accounts are now subject to the 10-year rule, which means the account must be fully depleted by the end of the 10th year following the year of death.
However, there is an important exception that often applies to siblings.
The Age Exception for Siblings
If you inherit a retirement account from a sibling and you are within 10 years of their age, you may qualify for the Eligible Designated Beneficiary exception. This allows you to use the old stretch IRA rules, instead of the 10-year rule.
This means:
You are not required to empty the account within 10 years
You are required to take annual RMDs based on your life expectancy
The account can continue to grow tax-deferred over your lifetime
Example
Let’s say:
Sue is age 50
Brian is her brother, age 45
Brian inherits Sue’s IRA
Because Brian is within 10 years of Sue’s age, he qualifies for the exception and can stretch distributions over his lifetime instead of following the 10-year rule.
He must begin taking Required Minimum Distributions (RMDs) starting the year after Sue passes away, but he is not forced to liquidate the entire account within 10 years.
Confusion With RMD Rules
This is one of the biggest areas of confusion for sibling beneficiaries.
There are two different sets of rules depending on whether the sibling qualifies for the within 10 year of age rule or not.
Situation 1: Sibling Within 10 Years of Age (Stretch Rules Apply)
If the sibling beneficiary is within 10 years of the person who passed away:
They are using the stretch IRA rules
They must take RMDs every year
RMDs begin the year after death
RMDs are calculated using the IRS Single Life Expectancy Table
They are not required to empty the account within 10 years
This is true regardless of whether the person who died had started RMDs or not.
This is where many people get confused. Under the old stretch rules, RMDs were always required for inherited IRAs, unless the beneficiary was a spouse.
Situation 2: Sibling More Than 10 Years Younger or Older (10-Year Rule Applies)
If the sibling is more than 10 years apart in age, they do not qualify for the exception and are subject to the 10-year rule.
Example:
Tim is age 55
His sister Jen is age 42
Jen inherits Tim’s IRA
Because the age difference is greater than 10 years, Jen must fully deplete the account within 10 years.
Now here’s where RMD rules depend on the age of the person who passed away:
If the person who passed away was not RMD age (under age 73) → No annual RMDs required, but account must be emptied by year 10.
If the person who passed away was already taking RMDs → The beneficiary must continue taking annual RMDs during the 10-year period.
Tax Strategies for Siblings Inheriting Retirement Accounts
This is where planning becomes very important, especially for siblings subject to the 10-year rule.
Strategy for Inherited Pre-Tax IRA or 401(k)
Distributions from inherited pre-tax retirement accounts are taxable income.
If you wait until year 10 and withdraw the entire account at once, that could push you into a very high tax bracket.
So in many cases, it may make sense to:
Take distributions gradually over the 10 years
Spread the tax liability over multiple years
Coordinate withdrawals with lower-income years
Take more in years where income is lower (retirement, job change, etc.)
Strategy for Inherited Roth IRA
If a sibling inherits a Roth IRA and is subject to the 10-year rule:
The account grows tax-free
Withdrawals are tax-free
The strategy is often to wait until year 10 and withdraw the account at the last possible moment to maximize tax-free growth
So the strategy is often:
Pre-tax account → Spread withdrawals out
Roth account → Wait as long as possible
Advanced Tax Strategy: The “Tax Bracket Wash” Strategy
There is also a more advanced strategy for individuals who are still working and inheriting a pre-tax retirement account.
If someone:
Takes a distribution from an inherited IRA (taxable)
Then increases their pre-tax contributions to their employer retirement plan (401(k), 403(b), etc.)
They may be able to offset the taxable income from the inherited IRA distribution with the tax deduction from increasing their pre-tax contributions.
In simple terms, they are:
Taking money out with one hand and putting money back into a retirement account with the other hand, while potentially neutralizing the tax impact.
This can be a very effective strategy for high-income earners who are not already maxing out their employer retirement plans.
Summary
When inheriting a retirement account from a sibling, the most important factor is the age difference between the siblings.
There are two main categories:
If Siblings Are Within 10 Years of Age:
Eligible Designated Beneficiary
Can use the stretch IRA rules
Must take annual RMDs
Do not have to empty the account within 10 years
If Siblings Are More Than 10 Years Apart:
Subject to the 10-year rule
Must empty the account within 10 years
May or may not have to take annual RMDs depending on the age of the sibling who passed away
Because inherited retirement accounts can have significant tax consequences, beneficiaries should strongly consider working with a financial advisor and tax professional to determine the best withdrawal strategy.
About Michael……...
Hi, I’m Michael Ruger. I’m the managing partner of Greenbush Financial Group and the creator of the nationally recognized Money Smart Board blog . I created the blog because there are a lot of events in life that require important financial decisions. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future.
Frequently Asked Questions
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Do siblings have to follow the 10-year rule when inheriting an IRA?Only if they are more than 10 years apart in age.
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What happens if siblings are within 10 years of age?They can stretch distributions over their lifetime and take RMDs each year.
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When do RMDs start for stretch rule inherited IRAs?Typically starting the year after the original owner passes away.
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Do I have to take RMDs if I'm subject to the 10-year rule?It depends on whether the person who passed away had started RMDs.
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Are inherited IRA distributions taxable?Yes, if it is a pre-tax IRA or 401(k).
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Are inherited Roth IRA distributions taxable?No, Roth IRA distributions are typically tax-free.
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Should I take money out each year or wait until year 10?It depends on your tax bracket and whether the account is pre-tax or Roth.
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What is the stretch IRA rule?It allows beneficiaries to take RMDs over their lifetime instead of emptying the account in 10 years.
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Can I reduce taxes from an inherited IRA?Yes, by spreading distributions over multiple years, waiting until lower income years to process distributions, or coordinating with retirement plan contributions.
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Should I talk to a financial advisor about inherited retirement accounts?Yes, because the withdrawal strategy can significantly impact how much tax you pay.
