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February 23, 2021

What is the 5-Year Rule for beneficiaries?

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5-Year Rule for Beneficiaries

The maximum period over which certain beneficiaries must take distributions from inherited IRAs.


For beneficiaries who inherit retirement accounts,  a common question asked is “What is the 5-Year Rule for beneficiaries?”

The beneficiary five-year rule is the maximum period that certain beneficiaries may keep inherited retirement accounts in a beneficiary account. Examples include beneficiary IRAs, beneficiary 401(k)s, beneficiary 403(b) and beneficiary governmental 457(b) plans.

Under the five-year rule, the inherited retirement assets must be fully distributed by the end of the 5th year, following the year the participant (owner of an IRA or account under an employer plan) dies. This applies to inherited IRAs including Roth IRAs, inherited 401(k)s, inherited 403(b)s and other inherited retirement accounts.

Under the five-year rule, distributions are optional for years one through four.

The applicability of the five-year rule depends on when the account was inherited.


For retirement accounts inherited before 2020

For retirement account inherited before 2020, the 5-year rule applies only if the participant died before the  required beginning date.

All Retirement Accounts except Roth IRAs

For non-Roth IRAs, designated beneficiaries usually have the option of choosing between the five-year rule and the life expectancy rule, if the retirement account owner died before the required beginning date. (A designated beneficiary is a person or qualified trust. A designated beneficiary status is determined September 30 of the year that follows the year in which the participant died).

Example: Mary inherited a traditional IRA in 2014 from her sister who died at age 67. Under the terms of the IRA agreement, Mary is subject to the 5-year rule. Distributions are optional for Mary up to December 31, 2018. But, by December 31 2019, the entire IRA balance must be distributed to Mary.

Many plan documents default to the life-expectancy rule, with the five-year rule applying only if elected. Some do default to the five-year rule.

Roth IRAs

The five-year rule applies to Roth IRAs regardless of the age of the Roth IRA owner at death, as there is no RMD for the Roth IRA owner and thus no required beginning date.

Example: Jamal inherited a Roth IRA from his father who died in 2014 at 80 years old. Jamal is subject to the five-year rule.

Non-person Beneficiaries

For a beneficiary who is not a designated beneficiary (nondesignated beneficiary), such as an estate or charity (non-person), the 5-year rule is the only option when the participant dies before the required beginning date.

For retirement account inherited after 2019

For retirement account inherited after 2019, the 5-year rule applies only if the beneficiary is not a designated beneficiary (nonperson) such as a charity or estate, and the retirement account owner dies before the required beginning date. This applies to all types of retirement accounts.


Referring Cite

IRC § 401(a)(9)(B)(ii), Treas. Reg. §1.401(a)(9)-3, Q&As 1, 2

Additional Helpful Information

  • Accounts inherited before 2020: When there is a designated beneficiary for the retirement account, the life-expectancy option is the default option when the account owner died before the RBD. However, some plan documents and IRA agreements do not offer the life-expectancy option; instead, they may require the beneficiary to distribute the balance soon after the participant’s death or within the five-year period.

If the beneficiary is a non-person, such as an estate of a non-qualified trust, the life-expectancy rule is not an option. Instead, the assets must be distributed within the five-year period, or faster if the plan document so requires.

  • Annuitized accounts: When the inherited account is an annuitized annuity, the terms of the contract must be consulted to determine the options that are available to the beneficiary.
  • 2020 Not counted for the 5-year rule: RMDs were waived for the year 2020 under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act). As a result, 2020 is not counted when counting the 5-year rule. Therefore, if someone or a nondesignated beneficiary inherited a retirement account before 2020 and was subject the 5-year rule, it is extended to six years if 2020 would have been one of the 5 years, had it not been for the CARES Act waiver.

Example: A charity inherited a traditional IRA from an individual who died at age 67 in 2018. The five-year period ends December 31, 2024, because 2020 is not counted.

2019Year 1
2020Not counted
2021Year 2
2022Year 3
2023Year 4
2024Year 5


Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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