When you inherit a Vanguard IRA, the rules governing how quickly you must withdraw the funds depend on your relationship to the original owner and whether they had already started required minimum distributions. Most adult non-spouse beneficiaries must follow the 10-year rule — emptying the account by December 31 of the 10th year after the original owner’s death. Vanguard’s inherited IRA is limited to Vanguard funds, which is a key limitation to understand before deciding where to open the account.
The 10-Year Rule: The Core Rule for Most Beneficiaries
Under the SECURE Act (effective January 1, 2020), most non-spouse beneficiaries who inherit an IRA must withdraw all funds by December 31 of the 10th year following the year of the owner’s death. There are no required annual distributions during years 1–9 unless the decedent had already started required minimum distributions (RMDs).
If the original owner had NOT yet started RMDs (died before their Required Beginning Date):
- Beneficiary can take distributions in any amount, at any time
- Account must be fully distributed by December 31 of the 10th year after death
- Strategy: spread withdrawals across years to manage tax brackets
If the original owner HAD started RMDs (died on or after their Required Beginning Date):
- Beneficiary must take annual RMDs in years 1–9 based on the beneficiary’s own life expectancy
- Account must be fully emptied by December 31 of the 10th year
- This rule was confirmed by IRS final regulations issued in July 2024
The Required Beginning Date is April 1 following the year the original owner turns age 73 (if born 1951–1959) or age 75 (if born 1960 or later) under SECURE 2.0.
Who Can Still Use the Stretch IRA (Eligible Designated Beneficiaries)
Five categories of beneficiaries — called Eligible Designated Beneficiaries (EDBs) — are exempt from the 10-year rule and may instead take distributions over their own life expectancy:
| Eligible Designated Beneficiary | Distribution Rule |
|---|---|
| Surviving spouse | Life expectancy or roll to own IRA |
| Minor child of the decedent | Life expectancy until majority, then 10-year rule |
| Disabled individual (IRS definition) | Life expectancy |
| Chronically ill individual | Life expectancy |
| Person not more than 10 years younger than decedent | Life expectancy |
All other beneficiaries — adult children, siblings, nieces, nephews, friends — must use the 10-year rule.
Surviving Spouse: Three Options
A surviving spouse has the most flexibility of any beneficiary:
- Roll to their own IRA — Treat the inherited IRA as their own; their own RMD rules apply; they can also make new contributions if eligible. Best if the surviving spouse is younger than the deceased.
- Open an inherited IRA — Keep the account as an inherited IRA; use the deceased’s or their own life expectancy to calculate RMDs. Useful if the surviving spouse is under 59½ and needs penalty-free access.
- Life expectancy distributions — Take distributions based on the surviving spouse’s single life expectancy each year.
No 10% Early Withdrawal Penalty
One key benefit of an inherited IRA: there is no 10% early withdrawal penalty, regardless of your age. This applies to both inherited traditional IRAs and inherited Roth IRAs. You will still owe ordinary income tax on distributions from an inherited traditional IRA.
Inherited Roth IRA Rules
The 10-year rule applies to inherited Roth IRAs the same as traditional IRAs — the account must be emptied by the end of the 10th year. However:
- Distributions are generally tax-free if the original Roth IRA was held for at least 5 years
- No annual RMDs required during the 10-year period, even if the decedent was past their RBD (because Roth IRAs have no RMDs for the original owner)
- Strategy: let the Roth account grow tax-free for all 10 years, then take a lump sum in year 10
Inherited IRA Rules: What You Cannot Do
- No contributions — You cannot add money to an inherited IRA
- No rollover to your own IRA — Non-spouse beneficiaries cannot roll an inherited IRA into their own IRA (doing so creates a taxable distribution)
- No conversion to Roth — Non-spouse beneficiaries cannot convert an inherited traditional IRA to a Roth (only surviving spouses who roll to their own IRA can do this)
- Do not combine inherited IRAs from different decedents — keep each inherited IRA separate by decedent
How to Open a Vanguard Inherited IRA
- Contact Vanguard — Call Vanguard’s Participant Services or initiate a beneficiary claim at vanguard.com. Have the account number, death certificate, and your ID ready.
- Open the inherited IRA — Vanguard establishes a new account titled to reflect the beneficiary relationship: “[Decedent Name], Deceased [Date], IRA FBO [Your Name].”
- Transfer assets — Vanguard fund holdings transfer in-kind. Assets invested in non-Vanguard funds (if the decedent used Vanguard’s brokerage) may need to be sold before transfer — confirm specifics with Vanguard.
- Choose your investments — You can hold any Vanguard mutual fund or ETF in the inherited IRA.
- Plan distributions — Use Vanguard’s RMD tools and consider working with a tax advisor to model the most tax-efficient drawdown schedule.
Vanguard’s Investment Limitation for Inherited IRAs
Vanguard inherited IRAs are limited to Vanguard mutual funds and ETFs. You cannot hold:
- Individual stocks or bonds
- ETFs from other providers (iShares, SPDR, etc.)
- Third-party mutual funds
If the original owner held non-Vanguard assets in a Vanguard brokerage account, you may need to liquidate those before the inherited IRA transfer is processed. If holding a broader investment menu matters to you, Fidelity, Schwab, or E*TRADE all allow full investment flexibility in their inherited IRAs.
Fees for Vanguard Inherited IRA
- $25 annual fee per Vanguard fund held in the account
- Waived for each fund once total Vanguard assets reach $50,000
- No transaction fees on Vanguard funds
Distribution Strategies
No prior RMDs (decedent died before Required Beginning Date): Take distributions in any amount, any year, during years 1–10. Spreading withdrawals across 10 years — especially years when your marginal tax rate is lower — minimizes the overall tax cost.
Prior RMDs required (decedent had started RMDs): Take the IRS-calculated RMD each year in years 1–9, plus any additional voluntary withdrawals. Clear the full balance by year 10.
Inherited Roth IRA: Take nothing for 9 years — Vanguard’s funds continue growing tax-free. Withdraw everything in year 10 with no tax owed (assuming the 5-year rule was satisfied).
Related Vanguard Guides
- Vanguard Traditional IRA 2026 — Deduction Rules & Limits
- Vanguard Roth IRA 2026 — Limits, Rules & How to Open
- Vanguard Backdoor Roth IRA 2026 — Step-by-Step Guide
- Vanguard SEP-IRA 2026 — Limits, Setup & Comparison
- Vanguard — Complete Investor Guide 2026
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