When you inherit a 403(b) retirement account, the rules for withdrawing the money depend almost entirely on your relationship to the person who died: a surviving spouse has the widest set of choices, a small group of “eligible designated beneficiaries” can stretch withdrawals over their lifetime, and everyone else has 10 years to empty the account. The SECURE Act of 2019 eliminated the old lifetime stretch for most non-spouse heirs, and whether the account holds pre-tax or Roth dollars determines the tax bill on the way out.
Figure Out Which Beneficiary You Are
Before you touch the money, identify your category. The IRS sorts inheritors of retirement accounts into three groups, and the timelines differ sharply among them.
A surviving spouse has the most options, including treating the 403(b) as their own. Most 403(b) plans require a married participant to name their spouse as primary beneficiary unless the spouse signed a written waiver.1Internal Revenue Service. Fixing Common Plan Mistakes – Failure to Obtain Spousal Consent
An eligible designated beneficiary (EDB) is the account holder’s minor child, a person who is disabled or chronically ill, or someone no more than 10 years younger than the deceased.2Internal Revenue Service. Retirement Topics – Beneficiary Spouses technically qualify as EDBs but have better options and are handled separately.
Everyone else is a non-eligible designated beneficiary: adult children, grandchildren, siblings, friends, or any other individual on the beneficiary form. This group lives under the 10-year rule with no lifetime stretch available.3Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs)
If You’re the Surviving Spouse
A spouse can either take the account over as their own or keep it in inherited form. The right answer usually turns on your age.
Rolling It Into Your Own Account
The most common move is a rollover into your own IRA or your own 403(b). After the rollover, the money is treated as if it had always been yours. Required minimum distributions don’t start until you reach your own RMD age: 73 if you were born between 1951 and 1959, or 75 if you were born in 1960 or later.3Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs) That gives you the longest possible period of tax-deferred growth.
The catch: withdrawals from a rolled-over account before you turn 59½ get hit with the standard 10% early withdrawal penalty. The death-distribution exception that would have shielded you from that penalty disappears the moment the money becomes your own.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions
Keeping It as an Inherited Account
Alternatively, you can transfer the 403(b) into an inherited IRA in your name. You can withdraw at any age with no 10% penalty, which matters if you’re under 59½ and need the money now. Under a SECURE 2.0 election, a spouse who keeps the account in inherited form can also choose to be treated as the deceased employee for RMD purposes, delaying required distributions until the year your spouse would have reached their RMD age and using the more favorable Uniform Lifetime Table to calculate them. You keep the right to roll the balance into your own IRA later.5Internal Revenue Service. Internal Revenue Bulletin 2024-33
A younger spouse who needs cash flow now usually prefers the inherited account. A spouse who won’t touch the money for years is usually better off with the full rollover.
If You’re an Eligible Designated Beneficiary
EDBs can stretch withdrawals over their own single life expectancy, which produces smaller annual distributions and lets the remaining balance keep growing. This is the closest surviving version of the old pre-SECURE stretch.
A disabled or chronically ill beneficiary, and a beneficiary within 10 years of the deceased’s age, can use the life-expectancy method indefinitely. A minor child of the deceased can stretch only until reaching the age of majority, which the IRS treats as 21 for this purpose. Once the child turns 21, the remaining balance has to be fully distributed within the following 10 years.2Internal Revenue Service. Retirement Topics – Beneficiary
Only the account holder’s own child qualifies as a minor-child EDB. Grandchildren, nieces, nephews, and other minor relatives fall under the standard 10-year rule.
The 10-Year Rule
If you’re an adult child, grandchild, sibling, friend, or anyone else who’s neither a spouse nor an EDB, the entire inherited 403(b) must be gone by December 31 of the 10th year after the year the account owner died.3Internal Revenue Service. Publication 590-B – Distributions from Individual Retirement Arrangements (IRAs) What you have to do during those 10 years depends on when the original owner died relative to their required beginning date for RMDs.
If the owner died before their required beginning date, you have full flexibility in years one through nine. Withdraw as much or as little as you want, so long as the account is empty by the end of year 10.
If the owner died on or after their required beginning date, final IRS regulations require you to take annual minimum distributions in years one through nine, calculated from your own life expectancy using the Single Life Table. The full balance still has to come out by the end of year 10. The IRS waived the penalty for missed annual distributions during the 2021 through 2024 transition period while the regulations were being finalized, but that relief has ended.6Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs
Even when annual distributions aren’t required, spreading withdrawals across the full 10 years usually saves money. A $500,000 lump sum in year 10 could push you into the 32% or 35% bracket; $50,000 per year might keep you in the 22% or 24% range.
How Withdrawals Are Taxed
Every distribution from an inherited 403(b) is reported to you and the IRS on Form 1099-R.7Internal Revenue Service. About Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The tax treatment depends on whether the account was a traditional (pre-tax) or Roth 403(b).
Traditional 403(b)
Withdrawals from a traditional 403(b) are taxed as ordinary income in the year you receive them. For 2026, federal rates run from 10% to 37% depending on your total taxable income.8Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026 Any portion the original owner contributed on an after-tax (non-Roth) basis comes out tax-free, but most traditional 403(b) balances are entirely pre-tax.
If a distribution isn’t sent as a direct transfer to an inherited IRA, the plan administrator must withhold 20% for federal income tax, and you can’t opt out.9eCFR. 26 CFR 31.3405(c)-1 – Withholding on Eligible Rollover Distributions
Roth 403(b)
Inherited Roth 403(b) distributions are federally tax-free if the account satisfies the five-year rule. The five-year clock starts on January 1 of the year the original owner made their first Roth 403(b) contribution. Once five full tax years have passed, both contributions and earnings come out tax-free. If five years haven’t passed, the original contributions still come out tax-free, but the earnings portion is taxable. Roth accounts remain subject to the 10-year rule for non-eligible beneficiaries; the withdrawals just usually don’t generate a tax bill.
No 10% Penalty on Death Distributions
Distributions from any properly titled inherited retirement account are exempt from the 10% early withdrawal penalty, regardless of your age. The IRS classifies these as death distributions, which the penalty doesn’t reach.4Internal Revenue Service. Retirement Topics – Exceptions to Tax on Early Distributions The protection only holds while the account remains titled as inherited; a spousal rollover into your own IRA removes it.
One option that isn’t available: qualified charitable distributions can only be made from IRAs, not from a 403(b), even an inherited one. You’d first have to move the inherited 403(b) to an inherited IRA before sending money directly to charity as a QCD.
Getting the Transfer and Title Right
Contact the plan administrator or custodian as soon as possible. You’ll typically need a certified copy of the death certificate and a completed beneficiary claim form. Some custodians also want a letter of instruction or, if a trust is involved, a copy of the trust document.
Getting the account title right is the single most important step. An incorrect title can cause the IRS to treat the entire balance as an immediate taxable distribution. The inherited account title must keep the deceased owner’s name in it along with yours as beneficiary. A typical format looks like: “[Deceased Owner’s Name], Deceased, FBO [Your Name], Beneficiary.” Exact wording varies by custodian, but the deceased’s name has to stay in the title.
Always ask for a direct trustee-to-trustee transfer rather than a check made payable to you. A direct transfer moves the money straight to the new inherited IRA, keeps the inherited status intact, and avoids the mandatory 20% federal withholding that hits when a check comes to you first.9eCFR. 26 CFR 31.3405(c)-1 – Withholding on Eligible Rollover Distributions
What Happens If You Miss a Required Distribution
Missing an RMD triggers an excise tax of 25% on the amount you should have withdrawn but didn’t. If you catch it and take the missed distribution within two years, the penalty drops to 10%.6Internal Revenue Service. Retirement Plan and IRA Required Minimum Distributions FAQs The IRS can also waive the penalty entirely for reasonable cause, such as a serious illness or a plan custodian’s administrative error; the request goes on Form 5329 with a written explanation.
The penalty applies both to the annual RMDs during years one through nine (when the owner died on or after the required beginning date) and to the year-10 deadline for emptying the account. Whatever balance remains after the 10th year is subject to the excise tax.
Trusts and Missing Beneficiaries
Two situations produce worse outcomes than a straightforward individual designation. When no beneficiary was named, or all named beneficiaries died before the account owner without a contingent named, the 403(b) usually passes to the estate. An estate isn’t a person, so the 10-year rule doesn’t apply: if the owner died before their required beginning date, the plan generally has to be emptied within five years, and if after, distributions continue based on the deceased’s remaining life expectancy.2Internal Revenue Service. Retirement Topics – Beneficiary
When a trust is named as beneficiary, the outcome depends on whether it qualifies as a “see-through” trust. If it does, the IRS applies the distribution rules based on the trust’s underlying individual beneficiaries. If it doesn’t, the trust is treated like no designated beneficiary, with the same five-year or life-expectancy result. Trust income retained inside an accumulation trust also faces the compressed trust tax brackets, which reach the top 37% rate at roughly $15,000 of income, so large inherited retirement balances held inside a trust can be taxed aggressively.
Disclaiming the Inheritance
You’re not required to accept an inherited 403(b). If passing the account to the next contingent beneficiary makes more sense for tax or personal reasons, you can file a qualified disclaimer. Federal rules require the disclaimer to be in writing, irrevocable, and delivered within nine months of the account owner’s death. You can’t have accepted any benefits from the account beforehand, and the disclaimed assets must pass to the next beneficiary without direction from you.10eCFR. 26 CFR 25.2518-2 – Requirements for a Qualified Disclaimer
The nine-month clock runs from the date of death, not from when you learn about the inheritance, so the window can close quickly if probate or plan paperwork drags.