Inherited SEP IRA and SIMPLE IRA Rules

Small business owners and self-employed individuals are among the most common holders of large IRAs — and when they die, their beneficiaries inherit SEP or SIMPLE IRAs that look different from regular IRAs but are governed by essentially the same SECURE Act rules.

What is a SEP IRA?

A Simplified Employee Pension (SEP) IRA is a retirement account used primarily by self-employed individuals and small business owners. The employer (often the same person as the employee, in a sole proprietorship) contributes directly to the employee's IRA. For 2026, SEP contributions are capped at $72,000 — or 25% of the employee's compensation, whichever is less — calculated on the first $360,000 of compensation.¹

Despite the "employer contribution" framing, a SEP IRA is legally a traditional individual retirement account under IRC § 408(k). The same rules that govern distributions from a regular IRA — including the post-death distribution rules under IRC § 401(a)(9) — apply fully.

What is a SIMPLE IRA?

A Savings Incentive Match Plan for Employees (SIMPLE) IRA is used by small employers (100 or fewer employees). Employees make salary-deferral contributions; the employer is required to make either a matching contribution or a non-elective contribution. Like a SEP, the account is legally an IRA under IRC § 408(p) — subject to the same post-death rules as a traditional IRA.

Inherited SEP IRA distribution rules

When you inherit a SEP IRA, treat it exactly as you would an inherited traditional IRA. The account type on the custodian's statement says "SEP IRA," but the tax rules are identical:

Non-spouse beneficiary: the SECURE Act 10-year rule

Under the SECURE Act, most non-spouse beneficiaries who inherit a SEP IRA from a decedent who died on or after January 1, 2020 must deplete the entire account by December 31 of the 10th year following the year of death.²

The same Eligible Designated Beneficiary (EDB) exceptions that apply to traditional IRAs apply here: surviving spouses, minor children of the account owner, disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the decedent retain the stretch option.

Annual RMDs in years 1–9: the T.D. 10001 split

IRS final regulations T.D. 10001 (July 2024) clarified the annual RMD requirement for non-EDB beneficiaries during the 10-year window:

• Decedent died before their Required Beginning Date (RBD): No annual RMDs are required in years 1–9. You must only deplete the full balance by year 10. The RBD for a SEP IRA is April 1 following the year the owner turns 73 (or 75 if born in 1960 or later, per SECURE 2.0).
• Decedent died on or after their RBD: Annual RMDs are required every year during the 10-year window, calculated using the Single Life Expectancy Table based on the beneficiary's age. The full account must still be depleted by December 31 of year 10 regardless.

The 2021–2024 IRS waiver notices (Notices 2022-53, 2023-54, 2024-35) excused certain missed annual RMDs during that period. Those waivers have expired. Starting with 2025 distributions, missed annual RMDs from post-RBD decedent inherited accounts are subject to the 25% excise tax under IRC § 4974, reducible to 10% if corrected within the correction window.³

Year-of-death RMD for SEP IRA

If the SEP IRA owner died after their RBD but had not taken their full annual RMD for the year of death, that remaining RMD obligation passes to the beneficiary. It must be taken by December 31 of the year of death and is calculated based on the account owner's Uniform Lifetime Table factor — not the beneficiary's age. This is identical to the year-of-death RMD obligation for inherited traditional IRAs.

One SEP-specific note: a sole proprietor employer can make a SEP contribution for the year of death as late as the business tax filing deadline (including extensions). If a contribution is made after death, it increases the account balance and potentially the year-of-death RMD shortfall. Coordinate with the executor.

Surviving spouse: rollover to own IRA

A surviving spouse who inherits a SEP IRA has the same options as with a traditional IRA:

• Roll to own IRA: Treat the SEP IRA as their own — subject to their own RMD rules (no RMD until their own RBD), ability to name their own beneficiaries, and their own Roth conversion options.
• Maintain as inherited SEP IRA: Retain beneficial access rules (no 10% penalty at any age; penalty-free access before age 59½ if the surviving spouse is younger than the decedent was at death).

The spousal rollover is almost always the right choice for surviving spouses under 59½ who don't need immediate distributions — it avoids the 10-year depletion clock and preserves maximum flexibility.

No early withdrawal penalty

Distributions from any inherited IRA — including inherited SEP IRAs — are permanently exempt from the 10% early distribution penalty under IRC § 72(t)(2)(A)(ii), regardless of the beneficiary's age. A 35-year-old who inherits a parent's SEP IRA can take distributions without penalty at any time. (Ordinary income tax still applies.)

Moving an inherited SEP IRA to a different custodian

If the decedent held their SEP IRA at a small custodian or company retirement plan provider you don't prefer, you can transfer it to an inherited IRA at a custodian of your choice (Fidelity, Vanguard, Schwab, etc.) via a direct trustee-to-trustee transfer.

Important distinctions:

• The transfer must be direct — trustee to trustee. A non-spouse beneficiary cannot receive a distribution and re-deposit it as a rollover (the 60-day rollover is prohibited for inherited IRAs under IRC § 408(d)(3)(C)).
• The new account title must reflect the inherited nature: typically "Jane Doe, Deceased, IRA FBO John Doe, Beneficiary."
• Once transferred, the account is generally re-titled as a regular inherited traditional IRA — the SEP designation does not follow the account at the beneficiary level.

Multiple inherited IRAs from the same decedent

Some business owners hold both a SEP IRA and a regular traditional IRA at death. As a beneficiary, you may inherit both. Key rules:

• Each account is a separate inherited IRA with its own 10-year clock running from the same death date.
• If there are multiple beneficiaries on either account, establish separate accounts by December 31 of the year following the year of death — otherwise, the oldest beneficiary's life expectancy governs all annual RMDs for that account.
• For RMD calculation purposes, you may aggregate multiple inherited IRAs from the same decedent — but only IRAs from that same decedent (not from different decedents, and not with your own IRAs).

SIMPLE IRA rules for beneficiaries

The SIMPLE IRA follows the same SECURE Act distribution rules as the traditional IRA, with one important exception: the 2-year transfer restriction.

The SIMPLE IRA 2-year rule explained

Under IRC § 72(t)(6), a SIMPLE IRA can only be rolled or transferred to another SIMPLE IRA during the first 2 years of plan participation, measured from the date of the employee's first SIMPLE IRA contribution. After 2 years, the SIMPLE IRA can be rolled or transferred to any traditional IRA.

This restriction applies to beneficiaries who inherit a SIMPLE IRA:

• If the deceased had the SIMPLE IRA for 2 or more years: The beneficiary can immediately transfer the inherited SIMPLE IRA to a regular inherited IRA at any custodian. Most inherited SIMPLE IRAs fall into this category, since SIMPLE IRAs are ongoing employment-based plans.
• If the deceased had the SIMPLE IRA for less than 2 years: The beneficiary must maintain the account as a SIMPLE IRA (or transfer to another SIMPLE IRA) until the 2-year period from the deceased's first contribution date expires. At that point, a trustee-to-trustee transfer to a regular inherited IRA is permitted.

The 2-year restriction affects account portability — not distributions. Distributions from an inherited SIMPLE IRA are not subject to the 25% early distribution penalty that can apply during the 2-year period for the account owner (since the death exception under § 72(t)(2)(A)(ii) applies regardless).

Practical note: Check the custodian's records for the date of the first SIMPLE IRA contribution. If it's more than 2 years before death, the 2-year rule is a non-issue.

SIMPLE IRA annual RMD and 10-year rules

Identical to the traditional IRA and SEP IRA rules described above. The same pre-RBD vs. post-RBD split from T.D. 10001 applies. The same EDB exceptions apply. The account must be fully depleted by December 31 of the 10th year for most non-spouse non-EDB beneficiaries.

Comparison: inherited SEP IRA vs. SIMPLE IRA vs. traditional IRA

Tax planning: the same strategies apply

Because inherited SEP and SIMPLE IRAs are taxed identically to inherited traditional IRAs, the same planning toolkit applies:

• Bracket management: Model your marginal rate across the 10-year window before committing to an annual distribution schedule. The 2026 brackets (22% ceiling at $105,700 / 24% ceiling at $201,775 for single filers, per Rev. Proc. 2025-32) should anchor your baseline math.
• Front-load in low-income years: If you're in a low-income year early in the window (retirement gap, sabbatical, large deductions), take larger distributions then rather than deferring into higher-income years.
• Roth conversion coordination: You cannot convert a non-spouse inherited IRA to Roth (IRC § 408(d)(3)(C)), but you can use the annual inherited IRA withdrawal to "fill up" a bracket and then Roth-convert your own IRA into the remaining room above that amount. A specialist models this across all 10 years.
• QCDs if you're 70½+: If you're age 70½ or older, a Qualified Charitable Distribution from your own IRA (up to $111,000 in 2026) reduces your AGI — freeing room for larger inherited SEP/SIMPLE IRA distributions without hitting higher brackets or IRMAA tiers.

Use the 10-Year Withdrawal Optimizer to model distribution schedules, or the Roth Conversion Coordinator to see the bracket-filling strategy in action.

Sources

1. IRS — SEP Contribution Limits (Including Grandfathered SARSEPs). For 2026: maximum SEP contribution is the lesser of $72,000 or 25% of compensation, calculated on the first $360,000 of compensation per Rev. Proc. 2025-32. (Verified May 2026.)
2. IRS — Retirement Topics: Beneficiary. SECURE Act 10-year depletion rule for non-EDB beneficiaries applies to IRAs including SEP and SIMPLE IRAs (all structured as IRAs under IRC § 408). IRS guidance on post-death distribution options for designated beneficiaries and non-designated beneficiaries.
3. IRS Publication 590-B — Distributions from Individual Retirement Arrangements (IRAs). Comprehensive IRS guidance on distribution rules including the SECURE Act 10-year rule, post-RBD annual RMD requirements per T.D. 10001, excise tax under IRC § 4974, and the 2021–2024 waiver history (Notices 2022-53, 2023-54, 2024-35). Waivers expired; 2025+ annual RMDs are required for post-RBD decedent accounts.
4. IRS — SIMPLE IRA Withdrawal and Transfer Rules. 2-year transfer restriction under IRC § 72(t)(6): SIMPLE IRA funds may only be transferred to another SIMPLE IRA in the first 2 years of plan participation, measured from first contribution date. After 2 years, may transfer to any traditional IRA. The 25% excise tax on early distributions within 2 years does not apply to distributions on account of death per § 72(t)(2)(A)(ii).

Tax values verified as of May 2026 against IRS.gov and Rev. Proc. 2025-32. The SECURE Act 10-year rule (IRC § 401(a)(9)(H)) and T.D. 10001 annual RMD rules apply to all IRAs including SEP and SIMPLE accounts. The SIMPLE IRA 2-year rule (§ 72(t)(6)) is a permanent provision. Consult a tax advisor for your specific situation.