These inherited IRA mistakes can reduce the benefits you receive, advisors say.

While many investors welcome a windfall, the rules for inherited individual retirement accounts are complex, and mistakes can be costly.

Starting in 2020, certain inherited accounts will be subject to the “10-year rule,” which requires heirs to empty their balances by the 10th anniversary of the original account owner’s death.

Additionally, some non-spouse beneficiaries (usually adult children) must begin taking required minimum distributions (RMDs) over a 10-year period in 2025 or face steep IRS penalties.

Inherited IRA plans are important amid a “massive wealth transfer” that is expected to transfer more than $100 trillion by 2048, according to a December report from Cerulli Associates.

Here are the three biggest mistakes inherited by IRAs, according to financial advisors, and how to avoid them.

For non-spouse heirs, “the rules[for inherited IRAs]can get complicated quickly, and it’s important to know your options,” says Brett Keppel, a certified financial planner and founder of Eudaimonia Wealth in Buffalo, New York.

The “10-year rule” and new RMD requirements in 2025 apply to most non-spousal beneficiaries, such as adult children, if the original IRA owner reached RMD age before death.

If you don’t take an inherited IRA RMD in 2025, you could be subject to an IRS penalty of 25% of the amount you should have withdrawn. However, you can reduce that fee to 10% by paying the correct amount and filing Form 5329 within two years. In some cases, the IRS may waive the penalty entirely.

If you inherit a pre-tax IRA, you can expect to pay ordinary income taxes on the withdrawals, so tax planning may be needed during the 10-year withdrawal period, experts say.

Some heirs want to receive only RMDs for the first nine years and a lump sum in the 10th year. But that could mean “a lot of tax in the final year of the distribution,” says John Nowak, CFP, founder of Aro Financial Planning in Mount Prospect, Illinois. He is also a certified public accountant.

Instead, you should perform multi-year tax forecasting to determine the optimal withdrawal amount for each year, experts say. For example, it may make sense to accelerate distributions during periods of temporarily low income.

Another common mistake is not changing inherited IRA assets, says CFP Jamie Bosse, senior advisor at CGN Advisors in Manhattan, Kansas.

Ideally, your investments should match your risk tolerance, goals, and schedule. “It’s your money now and it should be allocated according to your needs,” she said.

However, you should weigh your tax obligations, annual RMDs, and income needs when choosing an investment, says Nowak of Alo Financial Planning.

For example, holding a certificate of deposit in an IRA with a maturity date beyond the RMD window “could be difficult or costly to distribute,” he said.