Dear Liz: You recently answered a question from a person who inherited their father’s IRA in 2010 and learned they faced significant penalties for failing to withdraw the money over the subsequent 10 years.
But given how well the market has done over the last 16 years, is it possible they will end up with even more money despite the penalties than if they had withdrawn the funds as required?
Answer: No. The penalties are hefty enough that even a bull market shouldn’t tempt someone into ignoring them.
By the way, the original letter writer wasn’t required to drain the inherited IRA within 10 years.
That requirement for most nonspouse beneficiaries has only been in place since the SECURE Act of 2019. Before then, inheritors were typically allowed to stretch withdrawals over their own lifetimes — but they were still required to make annual withdrawals or face 50% penalties.
The SECURE Act reduced those penalties to a 25% excise tax on the amount that hadn’t been withdrawn. The penalty can be reduced to 10% if corrected within two years.
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