Understanding IRA Beneficiary Rules: What Changed Under the SECURE Act
Inheriting an IRA is more complex than it was just a few years ago. The Setting Every Community Up for Retirement Enhancement (SECURE) Act, passed in 2019, fundamentally changed the rules governing inherited retirement accounts, particularly for non-spouse beneficiaries. These changes introduced both added complexity and meaningful tax implications, making thoughtful planning and coordination with a tax advisor and your wealth consultant more important than ever.
From the “Stretch IRA” to the 10-Year Rule
For individuals who passed away before January 1, 2020, beneficiaries were generally able to “stretch” distributions from an inherited IRA over their life expectancy. This approach allowed for:
Under the SECURE Act, most beneficiaries are now subject to a 10-year rule, meaning:
It’s also worth noting that while penalties for missed inherited IRA RMDs were waived from 2021 through 2024, penalties resumed in 2025. Penalties start at 25% of the missed distribution but can be reduced to 10% if corrected in a timely manner. 2
Beneficiary Types and Distribution Rules
The distribution rules now depend heavily on the type of beneficiary. There are three primary categories:
1. Eligible Designated Beneficiaries (EDBs)
These beneficiaries can still “stretch” distributions over their life expectancy, preserving long-term tax deferral.
Eligible Designated Beneficiaries include:
2. Designated Beneficiaries (Most Non-Spouse Heirs)
This group includes most adult children and individual beneficiaries.
RMD requirements depend on whether the original owner had begun RMDs:
3. Non-Designated Beneficiaries (Estates and Certain Trusts)
These are non-individual beneficiaries and often face less favorable rules.
These scenarios can accelerate taxation and require careful estate planning.
Roth IRAs
Inherited Roth IRAs offer additional flexibility. No annual RMDs are required for beneficiaries; however, the 10-year rule still applies for most non-spouse beneficiaries. This allows assets to continue growing tax-free for up to 10 years before distribution.
Special Considerations for Surviving Spouses
Surviving spouses have unique flexibility and can choose between:
This decision can be particularly impactful:
Income Timing Strategies for Beneficiaries
With the compressed 10-year window, tax planning becomes critical. Beneficiaries should coordinate withdrawals with their broader financial picture.
Example: Near Retirement
Susan, age 55, inherits a $1 million IRA from her father, who had already begun RMDs. She must take annual RMDs and fully distribute the account within 10 years.
Because she plans to retire at age 60, she takes only the required minimum distributions while working, then accelerates withdrawals after retirement when her income, and tax rate, are lower.
Example: Surviving Spouse
John, age 60, inherits an IRA from his wife, who was age 65 at her passing. By maintaining the account as an inherited IRA, John can delay RMDs until his wife would have reached age 73, reducing his current taxable income.
Planning Considerations for IRA Owners
For individuals with significant IRA assets, especially those who may not need to fully spend them, these rule changes create important planning opportunities:
Converting pre-tax IRA assets to a Roth IRA during lower-income years can reduce future RMDs and provide beneficiaries with tax-free distributions.
Individuals age 70½ and older can donate up to $111,000 (2026) annually from their IRA directly to charity. This strategy reduces taxable income while supporting philanthropic goals.
Given the rule changes, it’s critical to regularly review beneficiary designations. Trusts named as beneficiaries should be evaluated with an estate attorney to ensure they align with your goals and function as intended.
Conclusion
The SECURE Act didn’t eliminate the benefits of inheriting an IRA, but it did compress the timeline and raise the stakes for tax planning. For many, the key question is how to structure distributions as efficiently as possible within a shorter window.
If you have questions about how these rules impact your financial plan, we recommend speaking with your wealth advisor and tax professional. If you’d like to learn more about working with our team, click here to learn more and take our client compatibility survey.
DISCLOSURE: This material has been prepared or is distributed solely for informational purposes only and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any opinions, recommendations, and assumptions included in this presentation are based upon current market conditions, reflect our judgment as of the date of this presentation, and are subject to change. Past performance is no guarantee of future results. All investments involve risk including the loss of principal. All material presented is compiled from sources believed to be reliable, but accuracy cannot be guaranteed and Evergreen makes no representation as to its accuracy or completeness. Securities highlighted or discussed in this communication are mentioned for illustrative purposes only and are not a recommendation for these securities. Evergreen actively manages client portfolios and securities discussed in this communication may or may not be held in such portfolios at any given time.
The information provided is general in nature and should not be considered legal or tax advice. Consult an attorney, tax professional, or other advisor regarding your specific legal or tax situation. The items included in this publication are our opinion as of the date of this piece, not all encompassing, and are subject to change without notice. This material has been prepared or is distributed solely for informational purposes and is not a solicitation or an offer to buy any security or instrument or to participate in any trading strategy. Any tax or legal advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.