New Rules: What Taxpayers Need to Know About Inherited IRAs

Robert DowdFebruary 12, 2021

Estate Planning

The passage of the SECURE Act in 2019 changed a few rules surrounding IRA taxes and beneficiary required minimum distributions that could affect the financial plan of an IRA beneficiary.

Before 2020, understanding required minimum distributions (RMD) was simple. The non-spouse beneficiary could take distributions over their expected lifetimes, which is referred to as a “stretch IRA.” If the beneficiaries were much younger than the original account owners, stretch IRAs minimized the taxes they had to pay on each distribution and provided a long period for the account to continue to grow on a tax-deferred basis. For a Roth IRA, the account would continue to grow on a tax-free basis.

The SECURE (Setting Every Community Up for Retirement Enhancement) Act that was passed in December of 2019 changed the way beneficiaries received money from inherited IRAs. After December 31, 2019, non-spouse beneficiaries who inherited Traditional IRAs or inherited Roth IRAs must take distributions during a 10-calendar year period, which begins the year after the death of the IRA owner.

The new 10-year rule for individuals inheriting an IRA

The new 10-year rule took effect on January 1, 2020, which means it will not affect the beneficiaries if the account owner died prior to December 31, 2019. There are no RMDs that must be taken each year within the 10-year period, only the entire account must be distributed by the end of the 10th year.

For example, a beneficiary could decide to wait until the 10th year to take a distribution of 100% of the account and satisfy the new rules. As a result, beneficiaries will pay income tax on those assets much sooner than under prior law by ‘stretching’ RMDs over their life expectancy.

Exceptions to the new minimum required distribution rules

There are exceptions to this new rule, and they apply to spousal beneficiaries, disabled and chronically ill beneficiaries, and those beneficiaries who are not more than 10 years younger than the deceased IRA owner. There is a delay in the 10-year rule if a beneficiary is a minor and the child of the IRA owner. But the 10-year clock must start once they reach the age of majority (18 or 21 under applicable state law).

Below is a breakdown of each category:

Pre-SECURE Act (inherited account before January 1, 2020):

  • Must take annual RMD.
    • Annual amount based on beneficiary’s age, account balance as of the end of the prior year, and the IRS life expectancy tables.
  • Distributions start the year after the death of IRA owner.
  • Distributions would be taken over expected lifetime.
  • Could delay taxes paid on distributions.
  • Promote tax-free growth.

Post-SECURE Act (inherited account after December 31, 2019):

  • No annual RMD.
  • Must spend down whole account balance in 10-years.
  • Pay income tax sooner compared to stretch IRA.
  • Promotes spend down of inherited assets.


  • Spousal beneficiaries: Can treat the inherited account as their own IRA and possibly delay RMDs until age 72.
  • Disabled or chronically ill beneficiaries: Can utilize stretch IRA distributions, but both disabled and chronically ill individuals must provide certification by a licensed health care provider to meet the requirements.
  • Not more than 10 years younger than decedent: These individuals do not need to be related to qualify.
  • Minor child: Delay until 18 or 21, and then apply the 10-year rule.

With tax season upon us, many individuals inheriting an IRA from a parent or other family member may be asking themselves about the associated taxes and required minimum distributions. At HFA, we have years of experience answering these IRA tax and related questions. If you’d like to get in touch, please do not hesitate to call our office (610-651-2777).


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