Understanding the 2025 Required Minimum Distribution (RMD) Guidelines for Inherited IRAs

Written by Dean Moro BComm, CIM^®, CRPC^®, Associate Portfolio Manager, & Carson Hamill CIM^®, CRPC^®, FCSI^®, Associate Portfolio Manager & Assistant Branch Manager

In 2025, new guidelines for required minimum distributions (RMDs) on inherited IRAs will take effect, significantly impacting beneficiaries and financial advisors. These changes aim to clarify rules introduced by the SECURE Act of 2019, which eliminated the stretch IRA for most non-spouse beneficiaries and established a 10-year withdrawal rule. Below is an overview of the updates, who they apply to, and examples to help beneficiaries understand their obligations.

• Key Updates to Inherited IRA RMD Rules in 2025
• How to Calculate RMDs for Inherited IRAs
• Examples
• Implications and Strategies

Key Updates to Inherited IRA RMD Rules in 2025

The IRS has provided new guidance to address confusion regarding RMDs for inherited IRAs under the 10-year rule.

For non-spouse beneficiaries who inherit an IRA after January 1, 2020, RMDs may now be required annually if the original account holder had already started taking RMDs before passing away. Beneficiaries must take annual withdrawals based on their life expectancy, with the remaining balance withdrawn by the end of the 10th year following the account holder’s death.

2. No RMDs for Certain Beneficiaries

If the original account holder had not started taking RMDs (died before their required beginning date), non-spouse beneficiaries can withdraw funds at any time during the 10-year period, as long as the account is fully depleted by the end of the 10th year.

3. Eligible Designated Beneficiaries (EDBs) Exemption

EDBs—including surviving spouses, minor children, disabled individuals, and beneficiaries not more than 10 years younger than the deceased—can still stretch distributions over their lifetime. However, minors must transition to the 10-year rule once they reach the age of majority.

How to Calculate RMDs for Inherited IRAs

To calculate an annual RMD for inherited IRAs under the 10-year rule, beneficiaries should follow these steps:

1. Determine the Beneficiary’s Life Expectancy Factor

Use the IRS Single Life Expectancy Table to find the factor based on the beneficiary’s age in the year following the account holder’s death.

2. Divide the Account Balance by the Life Expectancy Factor

RMD = Account Balance (as of December 31 of the previous year) ÷ Life Expectancy Factor.

3. Reduce the Life Expectancy Factor Each Year

Subtract one from the factor annually to determine RMDs for subsequent years.


* The IRA Life Expectancy Factor Tables can be found here. 

Examples

Example 1: RMD Required During the 10-Year Rule

Scenario: Jane inherits her father’s IRA in 2025. Her father passed away at age 75 and had already started RMDs.

Calculation: Jane, age 40, uses the life expectancy factor of 43.6 (per the IRS table). If the inherited IRA balance is $500,000:

Year 1 RMD = $500,000 ÷ 43.6 = $11,467.89.

Year 2 RMD = ($500,000 - Year 1 RMD) ÷ 42.6, and so on.


Example 2: No RMD Until the 10th Year

Scenario: John inherits his sister’s IRA in 2025. She passed away at age 65 without taking RMDs.

Rule: John is not required to take annual RMDs. He can withdraw funds flexibly but must deplete the account by the end of 2035.

Implications and Strategies

These new guidelines emphasize the importance of planning to minimize tax burdens. Beneficiaries should work with financial professionals to explore strategies such as:

Tax Bracket Management: Spreading withdrawals across multiple years to avoid spiking into higher tax brackets.

Roth Conversions: If the original account holder performed Roth conversions, distributions for beneficiaries will be tax-free.

Final Thoughts

The 2025 RMD guidelines for inherited IRAs reinforce the need for informed decision-making. By understanding the updated rules and seeking professional advice, beneficiaries can optimize withdrawals and avoid penalties. As these rules come into effect, beneficiaries and their advisors should review inherited accounts and adjust strategies accordingly.

Next Steps

If you’re planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please contact Snowbirds Wealth Management as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have a team behind you.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate portfolio managers with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.

To schedule an introductory call, please click here.    

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