Inherited IRAs After the SECURE Act: New Rules, New Risks
Even though the SECURE Act has been law for a few years now, many families are still catching up to what it actually means for them — especially when it comes to inheriting an IRA.
We previously covered how the SECURE Act changed the rules around Required Minimum Distributions. This time, we're digging into the change that estate planning attorneys talk about the most: the new rules for inherited IRA beneficiaries.
If you expect to inherit an IRA — or you're the one naming beneficiaries on your own account — this is worth understanding now, while there's still time to plan around it.
The End of the "Stretch IRA"
Before 2020, if you inherited a traditional IRA or retirement plan from someone other than a spouse, you generally had the option to spread distributions — and the taxes that come with them — across your own lifetime. This was often called the "stretch IRA" strategy, and it let beneficiaries manage the tax impact of an inherited account over many years.
The SECURE Act changed that. For most people who inherit an IRA from someone who passed away after 2020, the account now needs to be fully distributed within 10 years. The shorter timeline can mean a much larger tax bill than beneficiaries expect, particularly for those inheriting a high-value IRA.
Who is Exempt From the 10-Year Rule?
Not everyone is subject to the new 10-year timeline. Four categories of beneficiaries are still allowed to stretch distributions over a longer period:
Spouses
Beneficiaries who are disabled or chronically ill
Individuals not more than 10 years younger than the original account owner
Minor children of the account owner — though only until they reach the age of majority, at which point the 10-year clock begins
If you fall into one of these categories, it's worth confirming your specific situation with a qualified professional, since the rules and definitions can be nuanced.
Do You Have to Take Distributions Every Year During the 10 Years?
This is one of the most misunderstood parts of the rule, and it depends on one key factor: whether the original account owner had already reached their required beginning age (generally 73) at the time of death.
If the original owner was already past their required beginning age, the beneficiary is generally required to take annual distributions during the 10-year period, based on their own life expectancy.
If the original owner had not yet reached their required beginning age, the beneficiary typically does not need to take an annual distribution.
Either way, the entire account balance must be withdrawn by the end of the 10th year. If you wait until the last year to take it all out, it can create a significant, concentrated tax event — so this is an area where planning ahead really matters.
What This Means for Your Own Planning
If you own a traditional IRA and expect to pass it to someone other than a spouse, it's worth stepping back and asking whether your current beneficiary designations still make sense under these rules. A few areas worth a second look:
Individual Beneficiaries — do they still make sense given who is and isn't subject to the 10-year rule?
Are Trusts named as the beneficiary— do the trusts need to be updated with your estate attorney?
Should You consider Roth Conversions? — because Roth IRAs can generally be inherited income-tax-free, some people find it worthwhile to explore how converting a portion of traditional IRA assets to a Roth over time might fit into their broader estate and tax strategy. That said, whether this makes sense depends entirely on your personal tax situation and goals — it's a conversation for you and your financial planner, not a one-size-fits-all answer.
Where to Go From Here
The SECURE Act didn't just change a technical rule — it changed how families need to think about passing down retirement assets. The good news is that with some planning, most of the surprises can be avoided.
At Beacon Financial Strategies, we help clients look at inherited IRA rules as part of a broader, tax-efficient estate plan — not as one-off decisions made in isolation. If you're not sure how these rules apply to your situation, or you want a second look at your beneficiary designations, we're happy to help you think it through.