If you’ve inherited an individual retirement account, you may have big plans for the balance — but costly mistakes can quickly shrink the windfall, experts say.

Many investors roll pre-tax 401(k) plans into traditional IRAs, which trigger regular income taxes on future withdrawals. The tax rules are complicated for the heirs who inherit these IRAs.

The average IRA balance was $127,534 during the fourth quarter of 2024, up 38% from 2014, based on a Fidelity analysis of 16.8 million IRA accounts as of Dec. 31.

But some inherited accounts are significantly larger, and errors can be expensive, said IRA expert Denise Appleby, CEO of Appleby Retirement Consulting in Grayson, Georgia.

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Here are some big inherited IRA mistakes and how to avoid them, according to financial experts. 

Before the Secure Act of 2019, heirs could empty inherited IRAs over their lifetime to reduce yearly taxes, known as the “stretch IRA.”

But since 2020, certain heirs must follow the “10-year rule,” and IRAs must be depleted by the 10th year after the original account owner’s death. This applies to beneficiaries who are not a spouse, minor child, disabled, chronically ill or certain trusts.

Many heirs still don’t know how the 10-year rule works, and that can cost them, Appleby said.

If you don’t drain the balance within 10 years, there’s a 25% IRS penalty on the amount you should have withdrawn, which could be reduced or eliminated if you fix the issue within two years.

Starting in 2025, most non-spouse heirs must take required minimum distributions, or RMDs, while emptying inherited IRAs over 10 years, if the original account owner reached RMD age before death, according to final regulations released in July.

That could surprise some beneficiaries since the IRS previously waived penalties for missed RMDs from inherited IRAs, experts say.

While your custodian calculates your RMD, there are instances where it could be inaccurate, Appleby explained.

For example, there may be mistakes if you rolled over a balance in December or there’s a big age difference between you and your spouse.

“You need to communicate those things to your tax advisor,” she said.

Generally, you calculate RMDs for each account by dividing your prior Dec. 31 balance by a “life expectancy factor” provided by the IRS.

If you skip RMDs or don’t withdraw enough in 2025, you could see a 25% IRS penalty on the amount you should have withdrawn, or 10% if fixed within two years.

But the agency could waive the fee “if you act quickly enough” by sending Form 5329 and attaching a letter of explanation, Appleby said.

“Fix it the first year and tell the IRS you’re going to make sure it doesn’t happen again,” she said.

Consumer confidence in where the economy is headed hit a 12-year low this week, according to the Conference Board. A fresh reading out of University of Michigan today also showed a deterioration in overall sentiment with a 12% drop from February, marking the third month of decline.

Despite Americans’ concerns about the economy, they seem to be spending more. Roughly one in five Americans are shopping out of fear of future price hikes, which some experts refer to as doom spending.

Doom spending means making impulsive purchases largely driven out of fear over what the future may bring. In some cases, it’s a kind of retail therapy, but it can also be a strategy to get ahead of economic uncertainty.

“People are worried for a number of reasons,” Wendy De La Rosa, a Wharton professor who studies consumer behavior, told CNBC. “We as humans hate uncertainty and are averse to volatility. And so when there’s whiplash happening at a national level as to what tariffs are happening with which country and how it’s going to affect our domestic industries, that makes people really nervous.”

Consumer spending came in softer than expected in last month, but overall sales continued to grow steadily amid mounting fears of an economic slowdown and inflation.

It’s not just consumers who are concerned. Major companies, such as Walmart, Delta, and American Airlines, along with the Federal Reserve and Wall Street are all signaling uncertainty. The S&P 500 dropped 10% from record highs in February, suggesting investor fears over an economic slowdown.

Watch the video above to learn why Americans are spending more even in tough times and what this pattern means for the economy.

The more than 9 million student loan borrowers who are estimated to be late on their payments could experience “significant drops” in their credit scores during the first half of 2025, the Federal Reserve Bank of New York warns.

Some people with a student loan delinquency could see their scores fall by as much as 171 points, the Fed writes in a March 26 report. Credit scores, which impact people’s ability and costs to borrow, typically range from 300 to 850, with around 670 and higher considered good.

The expected drop was highest for borrowers who start with the best scores. Among those with scores under 620, the reported new delinquency could lead to an average 87-point decline.

“Although some of these borrowers may be able to cure their delinquencies,” the Fed writes, “the damage to their credit standing will have already been done and will remain on their credit reports for seven years.”

It’s been a long time since federal student loan borrowers have needed to worry about the consequences of missed payments, which can also include the garnishment of wages and retirement benefits. That’s because collection activity was suspended during the pandemic and for a while after. That relief period officially expired on Sept. 30, 2024.

As student loan delinquencies appear on credit reports again this year, borrowers are likely to face a cascade of financial consequences, said Doug Boneparth, a certified financial planner and the founder and president of Bone Fide Wealth in New York.

“This credit score penalty restricts their access to affordable financing, locking them into a cycle of elevated borrowing costs and fewer opportunities to rebuild their financial stability,” said Boneparth, who is a member of CNBC’s Advisor Council.

For one, finding an affordable repayment plan can lower your chances of falling behind on your bills. Borrowers can apply for an income-driven repayment plan, which will cap their monthly bill at a share of their discretionary income. Many borrowers end up with a monthly payment of zero.

The Education Department recently re-opened several IDR plan applications, following a period during which the plans were unavailable.

Borrowers can also apply for a number of deferments or forbearances, which can pause your payments for a year or more. It may show up on your credit report that you’re not currently making payments on your loan, but you shouldn’t be flagged as late, said higher education expert Mark Kantrowitz.

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Additionally if you’re already in default on your loans, you should consider rehabilitating or consolidating your debt to return to a current status, experts said.

Rehabilitating involves making “nine voluntary, reasonable and affordable monthly payments,” according to the Education Department. Those nine payments can be made over “a period of 10 consecutive months,” its website notes.

Consolidation, meanwhile, may be available to those who “make three consecutive, voluntary, on-time, full monthly payments.” At that point, they can essentially repackage their debt into a new loan.

If you don’t know who your loan servicer is, you can find out at Studentaid.gov.

Experts also recommend that you check your credit reports regularly for free at AnnualCreditReport.com to make sure all three credit rating companies — Experian, Equifax and TransUnion — are showing your correct student loan balance and payment status.