Vanguard Beneficiary Rules: Inherited IRAs & 10-Year Rule

Why Do Vanguard Beneficiary Designations Matter More at $5M+?

Beneficiary designations on Vanguard accounts are contractual instructions that legally override your will. Get them wrong and a $3M IRA can flow to an ex-spouse, force a seven-figure tax bill onto your children, or land in probate anyway. Since the IRS finalized its SECURE Act regulations in July 2024, the rules for inherited retirement accounts are stricter than most account owners realize: most non-spouse beneficiaries now face a 10-year deadline, and many of them owe annual required distributions inside that window, enforced starting with the 2025 tax year.

The standard advice on beneficiary designations was written for people with $500K in a rollover IRA. If you hold $2M+ in a traditional IRA or run a taxable estate that brushes up against the federal exemption, generic guidance creates real exposure. This article covers the current mechanics at Vanguard, the inherited IRA rules as they stand in 2026, and the mistakes that show up most often in $5M+ estates.

How Do You Add or Change a Beneficiary on a Vanguard Account?

Vanguard lets you add, edit, or remove beneficiaries online for IRAs and most individually owned accounts. Log in, go to Profile & account settings, select Beneficiaries, and use the add or edit function for each account. You will need each beneficiary's full legal name, date of birth, Social Security number, and a percentage allocation. Designations are per account: Vanguard does not carry a designation over to a new account automatically, so a $1.5M IRA opened three years after your original rollover has no beneficiary on file unless you added one explicitly.

A few details worth knowing before you start:

Primary and contingent layers. Vanguard defines a primary beneficiary as the first person, entity, or institution in line to receive your assets; contingent beneficiaries inherit only if all primary beneficiaries are deceased, cannot be located, or refuse the inheritance (Vanguard, "What is a beneficiary?"). The contingent layer is what makes post-death disclaimer planning possible.

Some registrations cannot take beneficiaries. Per Vanguard, joint tenants in common, UGMA/UTMA, community property, trust, estate, and organization accounts are not eligible. A trust account does not need one: the trust document controls. A joint account with rights of survivorship passes to the surviving owner by operation of law first, though Vanguard's Transfer on Death plan can cover what happens after both owners die.

Employer plans are separate. A 401(k) administered through Vanguard's institutional side follows your employer's plan document, not the retail interface. Under ERISA, your spouse has automatic rights to employer plan assets and must consent in writing, usually notarized, before anyone else can be named. Confirm with the plan administrator that the designation on file matches your intent.

Percentages, not dollar amounts. Dollar-amount designations go stale as values move and create undefined outcomes if the account value falls below the stated amount.

Review designations after every major life event: marriage, divorce, a birth, a death of a named beneficiary, or a move to a new state.

What Happens to a Vanguard Account With No Beneficiary Named?

For a Vanguard IRA with no beneficiary on file, Vanguard's default applies: the assets pass to your spouse if you are married at death, otherwise to your estate (Vanguard beneficiary resource center). For a taxable account with no TOD plan and no joint owner, the account is probate property, which means court supervision, public record, months to years of delay, and legal fees that commonly run 2% to 4% of estate value in states with statutory or customary fee schedules.

The estate-default outcome for an IRA is worse than it sounds, because an estate is not a "designated beneficiary" under the tax code. Under IRS rules for IRA beneficiaries, a non-designated beneficiary such as an estate must empty the account by the end of the fifth year after the year of death if the owner died before their required beginning date. If the owner died on or after that date, distributions run over the owner's remaining single life expectancy, the so-called ghost rule. Either way, the income lands on a fiduciary return taxed at compressed trust-and-estate brackets, and the probate process gets a large retirement account dumped into it.

The required beginning date itself is April 1 of the year after you reach RMD age. Required minimum distributions begin at age 73 for people born 1951 through 1959 and at age 75 for people born in 1960 or later (SECURE 2.0, section 107).

On a $2M IRA, the difference between a five-year forced distribution into a high-bracket estate and a managed 10-year distribution to an individual beneficiary is routinely $300,000 to $400,000 in federal tax. The fix takes ten minutes online.

Community property states add a layer. In Arizona, California, Nevada, Texas, Washington, and several others, a spouse may hold automatic community property rights in retirement assets regardless of the named beneficiary. If you opened accounts before your current marriage, moved states, or remarried, have a local estate attorney audit the designations.

How Does Vanguard's Transfer on Death Plan Work for Taxable Accounts?

Vanguard's Transfer on Death (TOD) plan is the beneficiary mechanism for nonretirement accounts. It is available on individual accounts and on joint tenants with rights of survivorship accounts, and it passes the assets directly to your named beneficiaries at death, outside probate. You can name individuals, an existing trust under agreement, or charities and other organizations, in whatever percentage split you choose.

Three points matter at the $5M+ level:

1. TOD on a joint account only fires at the second death. While one joint owner survives, survivorship controls and the TOD beneficiaries wait. The TOD plan is what keeps the account out of probate after both owners die.
2. Heirs still get the basis step-up. TOD changes who receives the account, not its tax character. Appreciated positions receive a stepped-up cost basis at death under IRC section 1014, which is why letting embedded gains die with you remains a core FatFIRE drawdown principle.
3. TOD is a distribution instruction, not an estate plan. Vanguard itself flags that the plan is not a substitute for a comprehensive estate plan and is a poor fit if you want terms or conditions on how heirs receive assets. Conditions require a trust.

Some registration types, joint accounts especially, still require a phone call or paper form to set up TOD beneficiaries. If the online flow tells you to call, budget a week for the form round-trip, then verify the designation shows correctly online.

What Are the Inherited IRA Rules Under SECURE 2.0 in 2026?

Most non-spouse beneficiaries who inherit a Vanguard IRA must empty it by December 31 of the tenth year after the year of death, and if the original owner died on or after their required beginning date, the beneficiary must also take annual RMDs in years one through nine. That second requirement is the piece most people missed. It comes from the final RMD regulations (T.D. 10001) published July 19, 2024, which apply for distribution calendar years beginning on or after January 1, 2025.

The sequence that got us here:

• SECURE Act (2019) ended the lifetime stretch for most non-spouse beneficiaries of owners dying after 2019 and replaced it with the 10-year rule.
• Proposed regulations (2022) surprised practitioners by reading the statute's "at least as rapidly" rule to require annual RMDs inside the 10-year window whenever the owner died on or after the required beginning date.
• IRS Notices 2022-53, 2023-54, and 2024-35 waived the excise tax for those missed annual RMDs for 2021 through 2024.
• The final regulations (July 2024) confirmed the annual-RMD reading: distributions after a post-RBD death must satisfy the annual distribution rule as well as the 10-year rule. The grace period ended. Annual RMDs inside the 10-year window are enforceable beginning with the 2025 distribution year, and the missed 2021-2024 amounts do not have to be made up.

The penalty for a missed RMD is a 25% excise tax on the shortfall, reduced to 10% if corrected promptly (SECURE 2.0, section 302).

Two important asymmetries:

• If the owner died before the required beginning date, a 10-year-rule beneficiary has no annual RMDs at all. Years one through nine are fully flexible; only the year-10 deadline binds.
• If the owner died on or after it, annual RMDs run on the beneficiary's single life expectancy during years one through nine, with full distribution by year 10.

When you inherit a Vanguard account, you provide the decedent's details and a death certificate if Vanguard cannot verify the death independently, open an inherited IRA in your name, and Vanguard prompts you on required distributions. The mechanics are covered in our guide to Vanguard inherited IRA withdrawal rules, and you can model the annual amounts with the Vanguard inherited IRA RMD calculator.

Who Counts as an Eligible Designated Beneficiary?

Eligible designated beneficiaries (EDBs) are the only class that can still stretch distributions over life expectancy. Under IRS beneficiary rules and the final regulations, the five categories are:

1. The surviving spouse.
2. A minor child of the account owner, until the child's 21st birthday. The final regulations fixed the age of majority at 21 regardless of state law. At 21 the 10-year rule starts, so the account must be empty by roughly age 31, and the child continues annual life-expectancy RMDs during that final 10-year window.
3. A disabled individual, as defined under IRC section 72(m)(7), with documentation standards in the final regulations.
4. A chronically ill individual, as defined under IRC section 7702B(c)(2).
5. Any individual not more than 10 years younger than the deceased owner. Siblings, partners, and friends close in age often qualify. Note the direction: anyone older than the owner qualifies too.

Everyone else who is a person, meaning adult children, most grandchildren, and younger relatives, is an ordinary designated beneficiary under the 10-year rule. Non-persons (estates, charities, non-qualifying trusts) are non-designated beneficiaries under the harsher 5-year or ghost rules.

Decision table: beneficiary type, distribution rules, deadline

What Are a Surviving Spouse's Options for an Inherited Vanguard IRA?

A surviving spouse has more options than any other beneficiary, and the right choice depends on the survivor's age, not just tax brackets. The four paths:

Assume the IRA as your own. The classic spousal rollover. The account becomes the survivor's IRA, RMDs follow the survivor's own age under the Uniform Lifetime Table, and the survivor's own beneficiaries reset the clock at their death. Best when the survivor is over 59½ and does not need early access.

Remain a beneficiary of an inherited IRA. Distributions before 59½ avoid the 10% early withdrawal penalty. A spouse who stays in beneficiary status can also delay RMDs until the year the deceased owner would have reached RMD age, which is valuable when the deceased was younger.

The SECURE 2.0 spousal election. Effective for 2024 and later, section 327 of SECURE 2.0 lets a surviving spouse who is sole beneficiary elect to be treated as the deceased owner for RMD purposes. The practical wins, confirmed in the IRS regulations effective January 1, 2025: RMDs can wait until the year the deceased spouse would have reached RMD age, they are calculated on the more generous Uniform Lifetime Table instead of the Single Life Table, and if the surviving spouse dies before distributions begin, their own beneficiaries are treated as original beneficiaries rather than successors.

Disclaim. A qualified disclaimer under IRC section 2518, executed within nine months of death and before accepting any benefit, passes the assets to the contingent beneficiaries as if the spouse had predeceased. With the federal exemption at $15M per person, disclaimers are now less about estate tax and more about generational income tax planning: pushing an IRA to children in lower brackets, or funding a bypass trust for state estate tax reasons. A disclaimer only works if the contingent designation was in place before death.

How Does the 10-Year Rule Work on a $3M Inherited IRA? A Worked Example

Assume a parent dies in 2025 at age 80, past their required beginning date, leaving a $3,000,000 traditional IRA at Vanguard to an adult daughter who turns 55 in 2026. She is not an EDB, so the 10-year rule applies with annual RMDs in years one through nine, and the account must be empty by December 31, 2035.

Her first distribution year is 2026. She looks up her age-55 factor in the Single Life Expectancy Table in IRS Publication 590-B: 31.6. Each later year she subtracts 1.0 from that factor. Assume the account grows 6% per year.

Sample arithmetic for year one: $3,000,000 divided by 31.6 equals $94,937. Year two: the balance after the first RMD, grown 6%, is $3,079,367, divided by 30.6 equals $100,633.

Here is the trap. The nine annual RMDs total about $1.09M, which sounds substantial, but at 6% growth the RMDs never keep pace with the account. The balance she must clear in 2035 is roughly $3.62M, larger than what she inherited. The 37% federal bracket begins at $640,600 for single filers in 2026 (IRS, Rev. Proc. 2025-32), and bracket thresholds only drift up with inflation. If she already earns a high income, essentially the entire balloon is taxed at 37%: roughly $1.3M of federal tax in a single year, before state tax.

The lesson: for a high-income beneficiary, the RMD is a floor, not a plan. Spreading roughly even distributions across all ten years, front-loading into any low-income year (sabbatical, business sale gap, early retirement before Social Security), and coordinating with the beneficiary's own required minimum distributions usually saves mid six figures against the take-the-minimum-then-balloon default.

How Are Inherited Roth IRAs Treated Under the 10-Year Rule?

An inherited Roth IRA still faces the 10-year rule for non-EDB beneficiaries, but with two decisive advantages. First, because Roth owners have no lifetime RMDs, the final regulations treat every Roth owner as having died before the required beginning date. That means no annual RMDs in years one through nine, ever, regardless of the owner's age at death. The only requirement is emptying the account by the end of year 10. Second, distributions are tax-free as long as the original owner first funded a Roth at least five years before the withdrawal year.

The optimal beneficiary strategy is therefore the opposite of the traditional IRA playbook: leave the inherited Roth untouched for the full ten years and take everything in year 10. On $2M growing at 6%, that is roughly $1.58M of additional tax-free compounding versus draining it early.

This asymmetry is the estate planning argument for Roth conversions late in life, ideally in the valley between retirement and RMD age when your own bracket is low. You swap a tax bomb your children must detonate inside ten years for a tax-free account they can compound for ten years, and the conversion tax paid shrinks the taxable estate as a quiet second benefit.

Can You Name a Trust as Beneficiary of a Vanguard IRA?

Yes, and for estates above $5M it is often the right answer for control, creditor protection, or second-marriage situations. But the trust must qualify as a see-through trust under the final regulations, and the drafting details determine the tax outcome. The four requirements:

1. The trust is valid under state law.
2. The trust is, or becomes, irrevocable at the owner's death.
3. The trust beneficiaries are identifiable from the trust instrument.
4. Required documentation reaches the IRA custodian by October 31 of the year after the year of death.

A trust that fails these tests is a non-designated beneficiary: 5-year rule if the owner died before the required beginning date, ghost rule if after. On a $3M IRA that is a material difference.

Qualifying trusts come in two flavors:

Conduit trusts pay every IRA distribution straight out to the trust beneficiary. Only the conduit beneficiary counts, so a conduit trust for a surviving spouse or disabled child preserves full EDB stretch treatment. The cost: nothing accumulates, so the "protection" evaporates as distributions flow out, and under the 10-year rule a conduit trust for an adult child guarantees the entire IRA is in the child's hands by year 10.

Accumulation trusts let the trustee retain distributions. That preserves asset protection and spendthrift control, but the trust is generally stuck with the 10-year rule, and retained income hits trust tax brackets that reach 37% at just $16,000 of income in 2026 (Rev. Proc. 2025-32). The final regulations did practitioners one favor: beneficiaries who could take only after the death of all prior beneficiaries are now disregarded, which stops a remote charity remainder from blowing up see-through status. A special accumulation trust for a disabled or chronically ill beneficiary, the applicable multi-beneficiary trust, can still stretch over that beneficiary's life expectancy.

The coordination requirement is real. The estate attorney drafts the trust; you type its exact name and date into Vanguard's beneficiary form. Those two artifacts are usually produced by people who never speak to each other, and that gap is where expensive mistakes live. For the account-side mechanics, see trust accounts at Vanguard and our review of Vanguard's trust services.

What Is the Difference Between Per Stirpes and Per Capita at Vanguard?

Per stirpes sends a deceased beneficiary's share down to that beneficiary's descendants; per capita redistributes it among your surviving named beneficiaries. Vanguard supports both concepts, though adding a per stirpes qualifier sometimes requires the paper beneficiary form rather than the online flow, so verify how the designation actually reads once filed.

The difference is easiest to see with numbers. You name three children at one third each, and your son, who has two children of his own, predeceases you:

• Per stirpes: his one third passes to his two children, one sixth each. Each family branch keeps its share.
• Per capita: his one third is split between your two surviving children, who now take one half each. His children get nothing.

For multi-generational estates, per stirpes usually matches intent, and it doubles as insurance against the scenario where a child dies shortly before you and the designation never gets updated. Whichever you choose, still name contingent beneficiaries: per stirpes only helps if the deceased beneficiary left descendants.

One related note: naming grandchildren or other minors directly hands them the full balance at the age of majority, with a court-supervised custodianship until then. For substantial sums, route minors through a trust or at minimum a custodial account structure with a named custodian.

What Are the Most Common Beneficiary Mistakes in $5M+ Estates?

The most expensive mistakes are structural, not exotic. In rough order of damage:

Naming the estate, or defaulting into it. Covered above: the estate is a non-designated beneficiary, loses the 10-year window, and drags the IRA through probate at compressed fiduciary tax rates. This mistake is usually passive, an account opened and never designated.

Stale designations after divorce. Many states have revocation-on-divorce statutes that automatically strike an ex-spouse from beneficiary designations on IRAs, TOD accounts, and life insurance; the Supreme Court upheld their retroactive application in Sveen v. Melin (2018). But other states have no such statute, and for employer plans the rule flips entirely: in Egelhoff v. Egelhoff (2001) the Court held ERISA preempts state revocation statutes, so a 401(k) still pays the ex-spouse on the form no matter what state law or the divorce decree says. The operational rule: never rely on state law to clean up after a divorce. Change every designation on every account yourself, and get spousal waivers where ERISA requires them.

Relying on the will to fix the forms. Beneficiary designations and TOD registrations transfer by contract and override the will. The comparison in living trust versus beneficiary designations walks through which instrument controls which asset.

Trust named, trust never verified. The Vanguard designation says "The Smith Family Trust" without a date, or names a trust restated under a new name, or nobody sends the documentation by the October 31 deadline. Any of these can demote the IRA to non-designated status.

Ignoring the annual RMDs inside the 10-year window. The penalty waivers for 2021 through 2024 are over. From 2025 forward, skipping the annual RMD triggers the 25% excise tax.

Naming "my children" instead of people. Vanguard designations need identified individuals or entities with SSNs and dates of birth. Ambiguity gets resolved by a probate judge, which defeats the purpose.

How Do Beneficiary Designations Fit Into the Broader Estate Plan?

Beneficiary designations are the distribution layer of an estate plan, not the tax layer, and at current exemption levels most FatFIRE estates should optimize them for income tax first. The federal estate and gift tax exemption is $15,000,000 per person, $30,000,000 per married couple, from January 1, 2026, made permanent by the One Big Beautiful Bill Act and indexed for inflation from 2027 (IRS, 2026 inflation adjustments). The old sunset panic is gone. For estates under $15M single or $30M married, the binding constraint is the income tax on inherited traditional IRAs, not the 40% estate tax.

That reframes several classic moves:

Spouse as primary, with intent-matching contingents. Assets passing to a U.S. citizen spouse qualify for the unlimited marital deduction under IRC section 2056, and the survivor can claim the deceased spouse's unused exemption through portability. The contingent line is where planning happens: children directly for simplicity, or a trust where control matters.

Lifetime giving to reduce the eventual IRA balloon. The annual gift tax exclusion for 2026 is $19,000 per recipient, unchanged from 2025 (IRS, Rev. Proc. 2025-32). Gifting from RMD proceeds, or spending traditional IRA dollars first so the estate skews toward step-up-eligible taxable assets and Roth, shrinks the account your heirs must drain inside ten years. Our guide to gifting RMD money to family covers the mechanics.

Charity takes the traditional IRA, family takes everything else. A charity named as IRA beneficiary pays no income tax on the distribution, while the same dollars left to children come with an embedded income tax bill of up to 37%. If you have any charitable intent at all, satisfying it with traditional IRA dollars and leaving Roth and stepped-up taxable assets to family is the cleanest arbitrage in estate planning. During life, qualified charitable distributions do the same job: the qualified charitable distribution limit is $111,000 for 2026, up from $108,000 in 2025 (IRS Notice 2025-67), available from age 70½ and countable against your RMD. The Vanguard-specific steps are in our QCD process guide.

Roth conversions as a bequest strategy. Paying conversion tax at your known bracket buys your heirs a ten-year tax-free compounding runway and removes the conversion tax from your estate.

For a full framework on how designations, trusts, titling, and gifting interact, start with the estate planning hub. For coordinating all of it on large balances, Vanguard's ultra-high-net-worth services include estate consultation, though complex trust drafting still belongs with independent counsel.

How Often Should You Review Vanguard Beneficiary Designations?

Do a full audit every 12 months, and immediately after any of these events:

• Marriage or divorce, yours or a beneficiary's
• Birth or adoption of a child or grandchild
• Death of a named beneficiary
• A move to a new state, particularly into or out of a community property state
• A new account opened at Vanguard or anywhere else
• Execution of a new will or trust, or a trust restatement
• A beneficiary's disability, bankruptcy, or creditor exposure
• Major tax law changes affecting retirement or estate rules

The audit itself is simple: open the beneficiary page for every account and confirm three things. The named people or entities are still correct, the percentages and per stirpes qualifiers still match intent, and every account has both a primary and a contingent layer. Keep a dated inventory across all custodians and give your estate attorney a copy.

The whole exercise costs an hour a year. Against the failure modes documented above, a $3.6M year-10 balloon at 37%, an ex-spouse collecting a 401(k), or a $2M IRA forced through a five-year estate distribution, it is the highest-yield hour in personal finance.

Sources

• Internal Revenue Service, Required Minimum Distributions, final regulations (T.D. 10001), 89 FR 58886, July 19, 2024.
• Internal Revenue Service, Retirement topics: beneficiary.
• Internal Revenue Service, Required minimum distributions for IRA beneficiaries.
• Internal Revenue Service, Publication 590-B, Distributions from Individual Retirement Arrangements, including the Single Life Expectancy Table.
• Internal Revenue Service, Notice 2024-35 (excise tax relief for missed 2024 beneficiary RMDs).
• Internal Revenue Service, Notice 2025-67 (2026 QCD limit).
• Internal Revenue Service, Rev. Proc. 2025-32 and IR-2025-103 (2026 inflation adjustments).
• U.S. Congress, SECURE 2.0 Act of 2022, Division T of P.L. 117-328, sections 107, 302, and 327.
• Vanguard, What is a beneficiary?, Transfer on Death plan, and Inheriting a Vanguard account, FAQ.
• Supreme Court of the United States, Sveen v. Melin, 584 U.S. ___ (2018) and Egelhoff v. Egelhoff, 532 U.S. 141 (2001).