Inherited IRAs &
Trust Beneficiaries

Three classes of beneficiary

For owners dying after December 31, 2019, IRC 401(a)(9) sorts beneficiaries into three classes, and the class controls the payout period. The rules are implemented by Treas. Reg. 1.401(a)(9)-3 through -5, finalized in July 2024 (T.D. 10001) and applicable beginning with the 2025 distribution year.

• Eligible designated beneficiaries (EDBs): the surviving spouse, the owner’s minor child (until age 21), a disabled or chronically ill individual, and an individual not more than 10 years younger than the owner. EDBs can still take distributions over their life expectancy.
• Designated beneficiaries: any other individual, and a see-through trust whose counted beneficiaries are not all EDBs. The 10-year rule applies.
• Non-designated beneficiaries: the estate, a charity, or a trust that fails the see-through requirements. The 5-year rule applies if the owner died before the required beginning date; otherwise, distributions run over the owner’s remaining single life expectancy.

Owners dying after 2019

Who gets which payout rule

Beneficiary	Payout rule
Surviving spouse	Life expectancy, or roll over and treat as own
Owner’s minor child	Life expectancy until age 21, then the 10-year rule
Disabled, chronically ill, or not more than 10 years younger	Life expectancy
Other individuals and qualifying see-through trusts	10-year rule, with annual RMDs in years 1 to 9 if the owner died on or after the RBD
Estate, charity, or non-see-through trust	5 years if the owner died before the RBD; otherwise the owner’s remaining life expectancy

The 10-year rule and annual RMDs

Under the 10-year rule, the account must be fully distributed by December 31 of the year containing the tenth anniversary of the owner’s death. Whether annual distributions are also required depends on when the owner died:

• Death before the required beginning date (April 1 of the year after the owner reaches the applicable age: 73 for those born 1951 through 1959): no annual RMDs; only the year-10 deadline applies. Roth IRA owners are always treated as dying before their required beginning date.
• Death on or after the required beginning date: annual RMDs in years 1 through 9, computed from the beneficiary’s single life expectancy for the year after death and reduced by one each year, plus full distribution by the end of year 10.

Notices 2022-53, 2023-54, and 2024-35 waived the excise tax on missed annual RMDs for 2021 through 2024. No waiver was issued for 2025, so 2025 was the first enforced year. A missed RMD carries a 25% excise tax under IRC 4974, reduced to 10% if corrected within the correction window, reported on Form 5329 with a reasonable cause waiver request where appropriate. The owner’s year-of-death RMD, if not taken before death, must also be satisfied by the beneficiaries.

See-through trust requirements

A trust named as beneficiary is looked through to its beneficiaries only if it is valid under state law, is irrevocable (or becomes irrevocable at the owner’s death), and has identifiable beneficiaries. Beneficiaries are determined as of September 30 of the year after death, which leaves a window for qualified disclaimers and for paying out charitable or other non-individual beneficiaries.

The trust documentation requirement now applies only to employer plans: the trustee must provide the trust, or a list of beneficiaries with the conditions on their entitlement, to the plan administrator by October 31 of the year after death. The final regulations do not require documentation to be provided to an IRA custodian, though custodians often ask for it.

Conduit vs. accumulation trusts

How the trust handles distributions it receives from the account determines both the payout period and where the income is taxed.

Trust as beneficiary

Conduit and accumulation trusts compared

	Conduit trust	Accumulation trust
Distributions from the account	Must be paid out to the beneficiary	Trustee may retain them
Beneficiaries counted	The conduit beneficiary only	Those who can receive retained amounts, with limited exceptions
Payout period	Follows the conduit beneficiary’s class	10-year rule unless every counted beneficiary is an EDB
Where the income is taxed	Beneficiary’s rates via DNI	Trust rates on retained amounts: 37% above $16,000
Tradeoff	Less protection for the beneficiary	More control, higher tax on retained income

For an accumulation trust, every retained distribution is taxed inside the trust’s compressed brackets, and the net investment income tax does not apply to retirement plan distributions. The fiduciary’s annual decision is how much to carry out to beneficiaries through DNI, which should be modeled alongside the required distribution each year, including use of the 65-day rule.

Surviving spouse elections

A surviving spouse who is the sole beneficiary can treat the account as their own, which resets RMDs to the spouse’s own schedule and allows new beneficiary designations. Alternatively, the spouse can remain a beneficiary and delay distributions until the year the deceased spouse would have reached the applicable age. Distributions to a beneficiary are exempt from the 10% early distribution tax under IRC 72(t)(2)(A)(ii), which matters for a spouse under 59½ who needs access to the funds before rolling over.

Reporting and coordination

Every distribution from an inherited traditional account is income in respect of a decedent with no basis step-up. When the estate paid federal estate tax on the account, the Section 691(c) deduction offsets part of the income tax and should follow the income to whoever reports it, including beneficiaries of a trust through the K-1.

What we handle

• Classifying each beneficiary and confirming the applicable payout rule
• Annual RMD calculations for inherited accounts held by trusts and estates
• See-through trust analysis and plan administrator documentation
• Distribution modeling for accumulation trusts: retain vs. carry out DNI
• Form 5329 filings and waiver requests for missed RMDs
• Section 691(c) calculations and K-1 reporting to beneficiaries

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