The SECURE Act and Inherited IRAs: What Changed and Why It Matters

The Setting Every Community Up for Retirement Enhancement Act — the SECURE Act — was signed into law in December 2019 and took effect January 1, 2020. Among its many provisions, the most consequential for estate planning was the elimination of the stretch IRA for most beneficiaries.

Under the old rules, a non-spouse beneficiary who inherited a traditional IRA could take required minimum distributions based on their own life expectancy. A 40-year-old inheriting a large IRA could spread distributions over 40+ years, keeping the bulk of the account growing tax-deferred for decades.

The SECURE Act replaced that with the 10-year rule: most non-spouse beneficiaries must fully distribute the inherited account by the end of the tenth year following the year of the original owner's death. There is no requirement to take distributions in years 1 through 9 under most circumstances — but the account must be empty by year 10.

The SECURE 2.0 Act (signed December 2022) made additional changes to retirement accounts, including adjustments to required beginning dates for RMDs. It did not reverse the 10-year rule for inherited IRAs.

The 10-year rule applies to most non-spouse beneficiaries who inherit a traditional IRA, a Roth IRA, or most employer-sponsored plans (401(k), 403(b), etc.) after December 31, 2019.

There are exceptions. The following categories of beneficiaries are classified as Eligible Designated Beneficiaries and are not subject to the 10-year rule:

• Surviving spouses — may roll the inherited IRA into their own IRA or treat it as their own
• Minor children of the original account owner — subject to the 10-year rule once they reach the age of majority (typically 21)
• Disabled individuals — as defined under IRC Section 72(m)(7)
• Chronically ill individuals — as defined under specific IRS criteria
• Beneficiaries not more than 10 years younger than the original owner — such as a sibling close in age

Adult children, grandchildren, siblings more than 10 years younger, and most other non-spouse beneficiaries are subject to the 10-year rule.

There is an additional layer of complexity that the IRS clarified in final regulations issued in 2024.

If the original account owner had already reached their Required Beginning Date — meaning they had started taking required minimum distributions before they passed — then the beneficiary is not just subject to the 10-year rule. They are also required to take annual RMDs in years 1 through 9, based on their own life expectancy. The account must still be empty by the end of year 10.

If the original owner had not yet reached their Required Beginning Date at the time of death, the beneficiary must still empty the account by year 10 — but is not required to take annual distributions in the interim.

The Required Beginning Date for most account owners is April 1 of the year following the year they turn 73 (under current law). This date affects whether heirs face mandatory annual distributions in addition to the 10-year endpoint.

The tax problem with the 10-year rule is not just that money comes out — it's when and at what rate.

Consider what a typical inheritance situation looks like. A parent builds a substantial traditional IRA over their working years and passes away in their late 70s or 80s. Their adult child — likely in their 40s or 50s — inherits the account. Those are often the peak earning years. The beneficiary may already be in the 32%, 35%, or 37% federal tax bracket.

Every dollar distributed from an inherited traditional IRA is taxed as ordinary income. Stack that on top of an already-high salary, and a meaningful portion of the inheritance gets paid to the IRS at the highest marginal rates.

Under the stretch IRA rules, a beneficiary could take small distributions over their lifetime — often during years when their income was lower — and defer the bulk of the tax burden for decades. The 10-year rule eliminates that flexibility.

This is a hypothetical illustration only. Actual outcomes depend on account balances, investment returns, tax rates, state taxes, and individual circumstances. This is not a projection of any specific investment or tax result.

The SECURE Act created urgency around a decision many people had been deferring: whether to convert traditional IRA balances to Roth during their lifetime.

A Roth IRA passed to a non-spouse beneficiary is still subject to the 10-year rule — the account must be emptied within 10 years. But the key difference is that Roth distributions are tax-free. The beneficiary inherits an account that has already been taxed, and all future growth comes out with no additional tax burden.

This doesn't mean Roth conversion is right for everyone. Whether it makes sense depends on the owner's current tax rate versus the beneficiary's expected rate, the size of the account, time horizon, and a number of other factors. It is a decision that should be made in coordination with a CPA.

Other planning approaches worth knowing about include qualified charitable distributions (QCDs) — which allow account holders over 70½ to direct up to $105,000 per year from an IRA to a charity tax-free — and qualified longevity annuity contracts (QLACs), which can defer a portion of RMDs. These are tools a competent advisor and CPA can help evaluate in the context of a broader plan.

Understanding Roth conversions — including the backdoor Roth and what options exist for high earners

If you've already inherited a traditional IRA, the 10-year clock is running. A few practical points:

• Know your required beginning date situation. If the original owner had started taking RMDs, you may be required to take annual distributions in years 1–9, not just empty the account by year 10. Failing to take required distributions carries a 25% penalty on the missed amount.
• Think about the distribution schedule, not just the deadline. You have flexibility in how much you take each year (subject to any required annual RMDs). Taking more in lower-income years can reduce the overall tax cost significantly.
• Consider the interaction with your other income. Distributions from an inherited IRA are ordinary income. A large distribution in a year where you also have a business sale, bonus, or other high-income event compounds the tax problem.
• Work with a CPA who understands the post-SECURE Act rules. The rules are complex and the 2024 IRS final regulations added nuance. The cost of getting this wrong is high.