Inherited IRA 10-Year Rule and Annual RMDs With Real Estate (2026)

Who is a designated beneficiary and who is an eligible one

The rules split heirs into three groups. A designated beneficiary is, in the regulation's words, “an individual who is a beneficiary designated under the plan” (26 CFR 1.401(a)(9)-4(a)(1)). An eligible designated beneficiary is a designated beneficiary who, at the owner's death, falls in one of the classes listed in 1.401(a)(9)-4(e)(1). Anyone else, such as an estate or a charity, is not a designated beneficiary. The date that fixes the answer is September 30 of the year after the death: a person who disclaimed or was paid out in full by then is ignored (Publication 590-B (2025)).

Source: 26 CFR 1.401(a)(9)-3, -4 and -5 and 1.408-8 (eCFR, current to October 6, 2026); IRS Publication 590-B (2025).

Two traps matter for IRAs with real estate or a fund. A trust named as beneficiary can qualify as a see-through trust, but then the trust, not the individuals, is the payee for the excise tax unless it is divided at death (26 CFR 1.401(a)(9)-8(a)(1)(iii)). And a surviving spouse can treat the IRA as their own only if the spouse is the sole beneficiary with an unlimited right to withdraw; a trust named as beneficiary fails that test “even if the surviving spouse is the sole beneficiary of the trust” (26 CFR 1.408-8(c)(1)(ii)).

When annual RMDs apply in years 1 to 9

The regulation sets two tracks. If the owner died before the required beginning date, a non-eligible heir is under the 10-year rule in 1.401(a)(9)-3(c)(3) and Publication 590-B states the consequence: “no distribution is required for any year before the 10th year.” If the owner died on or after the required beginning date, 1.401(a)(9)-5(d)(1)(i) adds that the annual distribution requirement “continues to apply for every distribution calendar year until the employee's interest is fully distributed.” The owner's required beginning date for an IRA is April 1 of the year after the owner reaches the applicable age (26 CFR 1.408-8(b)(1)(i)).

Source: 26 CFR 1.401(a)(9)-3, -5 and 1.408-8; IRS Publication 590-B (2025).

The 10-year clock counts calendar years, not 120 months. Publication 590-B gives the example: if the owner died in 2025, the account must be fully distributed by December 31, 2035. The table applies the same rule to each death year (our arithmetic).

Source: 26 CFR 1.401(a)(9)-5(a)(2), (e)(2); T.D. 10001, 89 FR 58886 (July 19, 2024); Notice 2024-35. Computed by our script.

The 2025 relief that did not happen, and what applies in 2026

The premise that 2025 had a further waiver does not match the documents. Three notices waived the excise tax for “specified RMDs”: Notice 2022-53 for 2021 and 2022, Notice 2023-54 for 2023, and Notice 2024-35 for 2024. In Notice 2024-35 the IRS said it “will not assert that an excise tax is due under § 4974” for a specified RMD, defined as a payment that the proposed regulations would have required in 2024 to a designated beneficiary of an owner who died in 2020 to 2023 on or after the required beginning date, or to the beneficiary of an eligible designated beneficiary who died in those years. The same notice announced that the final regulations would apply to calendar years beginning on or after January 1, 2025, and the final regulations say so: they apply “for purposes of determining required minimum distributions for calendar years beginning on or after January 1, 2025.” Publication 590-B (2025) mentions excise tax relief only for certain 2024 RMDs.

What that means as of October 20, 2026 (our reading of the sources above): the 2025 annual RMD for an owner who died on or after the required beginning date in 2024 or earlier was due by December 31, 2025, and the 2026 RMD is due by December 31, 2026. A missed 2025 RMD carries the 25% tax unless the IRS accepts a reasonable-error waiver. The Form 5329 instructions (2025) say the IRS “can waive part or all of this tax if you can show that any shortfall in the amount of distributions was due to reasonable error and you are taking reasonable steps to remedy the shortfall.”

A 10-year ladder with annual RMDs, and what year 10 looks like

Assumptions (all ours): the owner died in 2025 after the required beginning date; the heir, aged 50 in 2026, is not an eligible designated beneficiary; the IRA held $500,000 at December 31, 2025; the account earns 5% a year and each RMD is paid at year end. The divisor starts at the IRS Table I figure for age 50 (36.2) and falls by 1 each year (26 CFR 1.401(a)(9)-5(d)(3)(iii)). The owner's own remaining life expectancy is shorter, so the heir's figure is the greater (-5(d)(1)(ii)).

Source: IRS Publication 590-B (2025), Appendix B, Table I; 26 CFR 1.401(a)(9)-5(d), (e)(2). Our arithmetic, 5% return assumed. The nine RMDs from 2026 to 2034 total $153,264.66.

With the same $500,000 and the owner dead before the required beginning date, the account owes nothing for nine years and $814,447.31 in 2035 (500,000 × 1.05 to the 10th power, our arithmetic). The yearly RMDs pull $153,264.66 forward so that the last payment is $620,476.91 instead. How large the first RMD is depends mostly on the heir's age:

Source: IRS Publication 590-B (2025), Table I; our arithmetic. Publication 590-B's own example uses age 57 and a 2026 divisor of 29.8.

Withdrawals count as income in the year you take them, so they also move your Medicare premium brackets; see IRMAA brackets and real estate sales before you decide when to take more than the minimum.

When the IRA holds an asset that does not sell

The rules never look at what the account owns. The RMD formula in 1.401(a)(9)-5(a)(1) divides the account balance by the divisor, and the balance for an IRA is its value at December 31 of the prior year (26 CFR 1.408-8(b)(2)). What changes with an illiquid asset is how you raise the cash, and the 10-year rule makes the end game larger than the yearly game. We split the same $500,000 as $200,000 of cash and liquid funds and $300,000 of a non-traded REIT or real estate, pay each RMD from the liquid side only and let both sides earn 5% (our arithmetic):

Source: our arithmetic from IRS Table I divisors; the illiquid asset is assumed to grow 5% a year and to pay no income into the account.

Cash is not the problem in the early years: the liquid side lasts. The problem is 2035. At December 31, 2034 the account holds $125,531.93 of liquid assets and $465,398.46 of the illiquid asset; with one more year of growth the final payout is $620,476.91 (our arithmetic), of which $131,808.53 is liquid and $488,668.39 is the illiquid asset. That is the amount that has to be sold, redeemed, or distributed in kind by December 31, 2035. A non-traded REIT or interval fund that prorates repurchases (see our RMD census of 97 funds) can fill a tender only in part, so the sale has to start long before year 10.

Practical routes, each with its source:

• Pool the RMD across IRAs inherited from the same person. The RMD is calculated for each inherited IRA and the total can come from any of them, but not from your own IRA or from one inherited from someone else (26 CFR 1.408-8(e)(2); Publication 590-B (2025)). Separate accounts for each heir let each use their own divisor and decide what to sell; if they are not set up by the end of the year after the death, the aggregate RMD is split by share instead (1.401(a)(9)-8(a)(1)).
• Take the RMD in kind. Move shares, or an interest in the property, out of the IRA. The 2026 Instructions for Forms 1099-R and 5498 say that when you distribute “employer securities or other property” the payer includes in box 1 “the FMV of the securities or other property on the date of distribution”. That is the amount reported as the distribution; for why property inherited outside an IRA is taxed differently, see step-up in basis on inherited real estate (our reading: IRA property does not get that step-up).
• Transfer to a custodian that handles the asset. A beneficiary of a non-spouse IRA cannot roll amounts into or out of it, but a trustee-to-trustee transfer to an IRA kept in the decedent's name for your benefit is allowed (Publication 590-B (2025)). Our self-directed IRA real estate rules cover what such custodians do.
• Never roll the RMD over. Publication 590-B: “You can never make a rollover contribution of a required minimum distribution.”

How the value is set

The custodian reports the beneficiary's share at year end in Form 5498 box 5, and hard-to-value holdings in box 15a with a code such as D for real estate (Instructions for Forms 1099-R and 5498, 2026). The instruction is blunt: “Trustees and custodians are responsible for ensuring that all IRA assets (including those not traded on established markets or not having a readily determinable market value) are valued annually at their FMV.” One line matters for heirs: on RMD statements the instructions say “Until further guidance is issued, no reporting is required for IRAs of deceased participants”, so do not wait for a custodian letter with the amount. Compute it from the December 31 value on the year-end statement.

The penalty, in numbers

Using the first-year RMD from the ladder ($13,812.15) as the missed amount, the tax is $3,453.04 at 25% or $1,381.22 at 10% (our arithmetic), before income tax on the distribution.

Source: 26 U.S.C. 4974; IRS Publication 590-B (2025); Instructions for Form 5329 (2025).

Inherited Roth IRA

For a Roth IRA the owner never takes lifetime RMDs, so after death the rules “apply to Roth IRAs as though the Roth IRA owner died before their required beginning date” (Publication 590-B (2025)). The result for a non-eligible heir is the plainest version of the 10-year rule: no yearly RMD, full distribution by December 31 of the 10th year. That makes year 10 the only deadline, which is the hardest case for an illiquid asset. Whether each distribution is a qualified distribution decides its tax; Publication 590-B says one that is not “is generally includible” in the beneficiary's income. An inherited Roth IRA can be combined only with another Roth IRA inherited from the same decedent. Our Roth conversion page covers the owner's side of that choice.

Spouse: treat as own, or stay a beneficiary

A surviving spouse who is the sole beneficiary has the widest choices and one trap. Publication 590-B lists them: treat the IRA as your own, roll it into your own IRA, or stay a beneficiary. You are “considered to have chosen to treat the IRA as your own” if you contribute to it or “you don't take the required minimum distribution for a year as a beneficiary of the IRA” (Publication 590-B (2025)); the regulation calls this a deemed election (1.408-8(c)(2)). With an illiquid asset that matters twice. Staying a beneficiary uses Table I with the spouse's age redetermined each year (1.401(a)(9)-5(d)(3)(iv)); treating the IRA as own moves the spouse to RMDs computed as the owner (1.408-8(c)(3)). Spouse aged 62 in 2026, $500,000 and the owner dead after the required beginning date (our arithmetic):

Source: IRS Publication 590-B (2025), Table I; 26 CFR 1.401(a)(9)-5(d)(3)(iv). The $500,000 is held constant for comparison with the table above; the real balance changes each year.

The owner's death-year RMD is a separate bill. If the owner had reached the required beginning date and had not taken the RMD for the year of death, the heirs must take it: for an owner aged 80 who left $600,000 at the prior December 31, Table III gives 20.2 and the RMD is $29,702.97 (our arithmetic; Publication 590-B says to figure it “as if the owner lived for the entire year”).

Verdict: what to settle before December 31, 2026

1. Find the date of death and the required beginning date. They decide whether you owe yearly RMDs. The owner's required beginning date is April 1 after reaching the applicable age, 73 or 75 depending on birth year (see our RMD page).
2. Check whether you are eligible. Spouse, minor child, disabled or chronically ill person, or within 10 years of the owner's age. For a disabled or chronically ill heir, the documentation date for deaths through 2024 was October 31, 2025; later deaths use October 31 of the following year (1.401(a)(9)-4(e)(7)).
3. Get the December 31, 2025 value of the illiquid asset and the divisor. Divide, and pay by December 31, 2026.
4. Write down the year-10 date and the plan for the illiquid asset. Sale, redemption queue, or an in-kind distribution; the liquidity table shows how much of the final payout it can be.
5. If you missed 2025, take it now. The 10% rate needs the distribution and a return inside the window; the waiver needs reasonable error.

What a reader can do with this

• Run your own numbers. Use the ladder: balance at last December 31, divided by the Table I figure for your age in 2026, less 1 for each later year. The CSV has Table I for ages 40 to 70.
• Ask the custodian three things in writing: the December 31, 2025 value it used for the illiquid asset and where it came from, whether it will distribute in kind and how it values the shares on the distribution date, and whether it will split the IRA by beneficiary.
• Read the fund's terms. Repurchase windows, proration and the lock-up of any private fund determine whether a tender can pay the RMD; see our RMD census.
• Plan the tax year, not only the IRA. Read our QCD page for charitable distributions. Property the owner held outside the IRA goes through probate and the estate tax exemption rules, which are separate from the IRA rules above.

The penalty for a missed annual RMD is 25% of the shortfall. This is analysis of public documents, not investment, legal or tax advice.

FAQ

Sources, read and saved on October 20, 2026: 26 U.S.C. 401(a)(9) and 4974 (Cornell LII); 26 CFR 1.401(a)(9)-1, -3, -4, -5, -6, -8 and 1.408-8 (eCFR, current to October 6, 2026); T.D. 10001, Required Minimum Distributions, 89 FR 58886 (Federal Register document 2024-14542, July 19, 2024); IRS Notice 2024-35; IRS Publication 590-B (2025); Instructions for Forms 1099-R and 5498 (2026); Instructions for Form 5329 (2025); IRS retirement plan and IRA RMD FAQs. Worked examples, the ladder, the liquidity split and all totals are our arithmetic (assumed 5% return, script saved with this page). This is analysis of public documents, not investment, legal or tax advice.