Did You Recently Inherit An IRA? The 10-Year Rule May Apply
The SECURE Act reshaped how IRAs inherited after 2020 are distributed, and the so-called “10-Year Rule” now stands at the center of estate and retirement planning. Understanding these rules is essential, as they affect both the original account owner and those who inherit retirement assets.
Inherited IRAs fall into three categories of beneficiaries. Spouses, certain disabled or chronically ill individuals, minor children of the owner, and heirs less than ten years younger qualify as “Eligible Designated Beneficiaries.” They retain the most favorable option: the ability to stretch withdrawals over their lifetimes. Most others are considered “Non-Eligible Beneficiaries” and must deplete the account within ten years of the original owner’s death. A third category – non-individual heirs such as estates, charities, or accumulation trusts – faces the most restrictive distribution schedules.
Rules also hinge on whether the original owner had already begun required minimum distributions. If they had, the beneficiary must continue taking annual withdrawals throughout the ten-year period, and the account must be fully depleted by the end of it. If the owner had not yet begun required withdrawals, the heir may postpone distributions, but the account still must be emptied within ten years.
Planning opportunities exist on both sides of the equation. For IRA owners, strategies include weighing the tax situations of heirs when deciding how to leave assets, bypassing a spouse to create multiple ten-year distribution periods, and considering Roth conversions to minimize the taxable burden for the next generation. Roth IRAs are especially attractive since they don’t require distributions during the owner’s lifetime and provide heirs with a decade of tax-free growth.
For IRA inheritors, timing distributions becomes a critical decision. Spreading withdrawals across multiple years can help minimize taxes, and accelerating withdrawals during low-income years may create savings. In some cases, delaying until the later years of the window makes sense, particularly with Roth assets. An often-overlooked approach involves taking a withdrawal in the year of death, effectively turning a ten-year schedule into an eleven-year one.
The 10-Year Rule has eliminated the flexibility of the old “stretch IRA,” but it has also created new avenues for careful planning. Distribution timing, Roth strategies, and coordinated estate planning can help reduce the tax impact and preserve more wealth across generations.
Please reach out to your Wealth Manager with questions about inherited IRAs.
Weekly Commentary
Wealth Planning Commentary – August 18, 2025
Mallon FitzPatrick
Did You Recently Inherit An IRA? The 10-Year Rule May Apply
The SECURE Act reshaped how IRAs inherited after 2020 are distributed, and the so-called “10-Year Rule” now stands at the center of estate and retirement planning. Understanding these rules is essential, as they affect both the original account owner and those who inherit retirement assets.
Inherited IRAs fall into three categories of beneficiaries. Spouses, certain disabled or chronically ill individuals, minor children of the owner, and heirs less than ten years younger qualify as “Eligible Designated Beneficiaries.” They retain the most favorable option: the ability to stretch withdrawals over their lifetimes. Most others are considered “Non-Eligible Beneficiaries” and must deplete the account within ten years of the original owner’s death. A third category – non-individual heirs such as estates, charities, or accumulation trusts – faces the most restrictive distribution schedules.
Rules also hinge on whether the original owner had already begun required minimum distributions. If they had, the beneficiary must continue taking annual withdrawals throughout the ten-year period, and the account must be fully depleted by the end of it. If the owner had not yet begun required withdrawals, the heir may postpone distributions, but the account still must be emptied within ten years.
Planning opportunities exist on both sides of the equation. For IRA owners, strategies include weighing the tax situations of heirs when deciding how to leave assets, bypassing a spouse to create multiple ten-year distribution periods, and considering Roth conversions to minimize the taxable burden for the next generation. Roth IRAs are especially attractive since they don’t require distributions during the owner’s lifetime and provide heirs with a decade of tax-free growth.
For IRA inheritors, timing distributions becomes a critical decision. Spreading withdrawals across multiple years can help minimize taxes, and accelerating withdrawals during low-income years may create savings. In some cases, delaying until the later years of the window makes sense, particularly with Roth assets. An often-overlooked approach involves taking a withdrawal in the year of death, effectively turning a ten-year schedule into an eleven-year one.
The 10-Year Rule has eliminated the flexibility of the old “stretch IRA,” but it has also created new avenues for careful planning. Distribution timing, Roth strategies, and coordinated estate planning can help reduce the tax impact and preserve more wealth across generations.
Please reach out to your Wealth Manager with questions about inherited IRAs.
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