Inherited IRA Rules: The SECURE Act 10-Year Rule Explained

If you've inherited an IRA — or expect to — the rules have changed dramatically. The SECURE Act of 2019, followed by SECURE Act 2.0 in 2022 and subsequent IRS guidance, overhauled how inherited IRAs work. The old "stretch IRA" strategy that allowed beneficiaries to take distributions over their lifetime is largely gone, replaced by a 10-year rule that accelerates taxation for most non-spouse beneficiaries.

Here's what you need to know.

The Old Rules vs. The New Rules

Before the SECURE Act (deaths before January 1, 2020): Non-spouse beneficiaries could "stretch" distributions over their own life expectancy. A 30-year-old inheriting an IRA could take small required minimum distributions (RMDs) over 50+ years, letting the bulk of the account continue growing tax-deferred.

After the SECURE Act (deaths on or after January 1, 2020): Most non-spouse beneficiaries must now empty the inherited IRA within 10 years of the original owner's death. No more multi-decade stretch. This can result in significantly higher taxes, especially if the beneficiary is in their peak earning years.

The 10-Year Rule: How It Actually Works

The 10-year rule means the entire inherited IRA must be fully distributed by December 31 of the year containing the 10th anniversary of the original owner's death.

Example: If your parent dies on March 15, 2026, you must fully distribute the inherited IRA by December 31, 2036.

Do You Have to Take Annual RMDs During the 10 Years?

This was a source of massive confusion for years. The IRS issued final regulations in 2024 clarifying the rules:

• **If the original owner died BEFORE their required beginning date** (generally April 1 after turning 73): No annual RMDs are required. You can distribute the entire account in year 10 if you want, or spread it out however you like — as long as it's fully emptied by the end of year 10.

• **If the original owner died ON or AFTER their required beginning date**: Annual RMDs ARE required in years 1-9, calculated based on the beneficiary's life expectancy. Plus, the account must still be fully emptied by the end of year 10.

The IRS waived penalties for missed RMDs in 2021-2024 while the regulations were being finalized, but that grace period has ended. Going forward, missing required annual distributions triggers a 25% penalty (reduced to 10% if corrected within two years).

Who Is Exempt from the 10-Year Rule?

Certain "eligible designated beneficiaries" (EDBs) are exempt from the 10-year rule and can still stretch distributions over their life expectancy:

1. Surviving spouses — The most common exception. Spouses have the most flexibility of any beneficiary (more on this below).

2. Minor children of the deceased — But only until they reach the "age of majority." Under SECURE Act 2.0, the age of majority for this purpose is 21. Once the child turns 21, the 10-year clock starts. Note: This applies only to the deceased's own children, not grandchildren, nieces, nephews, etc.

3. Disabled individuals — As defined under IRC Section 72(m)(7). This requires documentation of a medically determinable condition.

4. Chronically ill individuals — As defined under IRC Section 7702B(c)(2).

5. Beneficiaries not more than 10 years younger than the deceased — This often applies to siblings or partners close in age.

Everyone else — adult children, grandchildren, friends, most non-spouse beneficiaries — is subject to the 10-year rule.

Surviving Spouse Options

Surviving spouses have the most flexibility with inherited IRAs:

Option 1: Spousal Rollover Roll the inherited IRA into your own IRA. It's now treated as your own — you take RMDs based on your own age, can make contributions, and can name your own beneficiaries. This is often the best option for younger surviving spouses who don't need the money immediately.

Option 2: Remain as Beneficiary Keep it as an inherited IRA. RMDs are based on your life expectancy, recalculated annually. This can be advantageous if you're under 59½ and need access to the funds without the 10% early withdrawal penalty.

Option 3: Elect the 10-Year Rule You can voluntarily choose the 10-year rule if it suits your tax planning strategy. This is rarely the best option but may make sense in specific circumstances.

SECURE Act 2.0 Change for Spouses Starting in 2024, surviving spouses can elect to be treated as the deceased spouse for RMD purposes. This delays RMDs until the deceased spouse would have reached their RMD age, which benefits younger surviving spouses.

Inherited Roth IRAs

Roth IRAs follow the same 10-year rule for non-spouse beneficiaries, but with an important difference: no annual RMDs are required during the 10-year period, regardless of whether the original owner had reached their required beginning date.

Since Roth IRA distributions are generally tax-free (assuming the 5-year holding period has been met), the 10-year rule is less painful. The account can continue growing tax-free for the full 10 years, and all distributions are tax-free.

Strategy tip: If a parent has both traditional and Roth IRAs, converting some traditional IRA assets to Roth during their lifetime (paying the tax now) can benefit heirs significantly, since the inherited Roth gets 10 years of tax-free growth and tax-free distributions.

Tax Planning Strategies for the 10-Year Rule

If you're subject to the 10-year rule on a traditional inherited IRA, strategic timing of distributions can save significant taxes:

Spread Distributions Evenly Rather than waiting until year 10 and taking one massive distribution, spread it across all 10 years. This keeps you in lower tax brackets each year.

Time Distributions with Low-Income Years If you have a year with lower income (career change, sabbatical, part-time work), take a larger distribution that year when your marginal tax rate is lower.

Coordinate with Other Income Consider how inherited IRA distributions interact with: - Social Security taxation thresholds - Medicare IRMAA surcharges (income-related adjustments to premiums) - Capital gains from other inherited assets - State income tax brackets

Consider Charitable Distributions If you're charitably inclined, qualified charitable distributions (QCDs) from inherited IRAs can satisfy RMD requirements without increasing your taxable income. You must be 70½ or older to use QCDs.

Naming Beneficiaries: What the Original IRA Owner Should Do

If you currently have an IRA and want to plan for your beneficiaries:

1. Review your beneficiary designations regularly. Beneficiary designations override your will. If your ex-spouse is still named as beneficiary, they'll inherit the IRA regardless of what your will says.

2. Consider naming a trust as beneficiary only with professional guidance. Trusts can be useful for controlling distributions to minor children or spendthrift beneficiaries, but they come with complex rules and can inadvertently trigger worse tax treatment.

3. Think about Roth conversions. Converting some traditional IRA assets to Roth during your lifetime shifts the tax burden from your heirs to you. If you're in a lower tax bracket than your heirs will be, this can be efficient.

4. Document everything. Your executor and beneficiaries need to know which IRA accounts exist, where they're held, and who is named as beneficiary. Storing this information securely in a tool like Passed Plan ensures nothing gets overlooked.

Common Mistakes to Avoid

• **Missing the 10-year deadline**: If you don't empty the inherited IRA by the end of year 10, the excess is subject to a 25% penalty.
• **Forgetting annual RMDs when required**: If the original owner died after their required beginning date, annual RMDs in years 1-9 are mandatory.
• **Rolling a non-spouse inherited IRA into your own IRA**: Only surviving spouses can do a rollover. Non-spouse beneficiaries who accidentally do this face a taxable distribution plus potential penalties.
• **Ignoring state taxes**: Some states have no income tax, some conform to federal rules, and some have their own inherited IRA rules. Don't plan around federal taxes alone.

Get Your IRA Documentation in Order

Whether you're an IRA owner planning for your beneficiaries or someone who has inherited an IRA, documentation is critical. Know what accounts exist, where they're held, who the beneficiaries are, and what the tax implications will be.

Passed Plan helps you organize all your financial accounts — including IRAs and retirement accounts — in one secure, encrypted place. Make sure your executor and beneficiaries have the information they need.