Stretch IRA vs. the New Inherited IRA Rules: What Changed and Why It Matters
For decades, inheriting an IRA came with a powerful tax-advantaged strategy known as the "stretch IRA." If you have a 401k or 403b, this change could directly impact you and your family. That’s because most people eventually roll their workplace retirement account into an IRA when they retire. From there, you can either start drawing from the IRA right away—or wait until the IRS requires you to take annual withdrawals, known as required minimum distributions (RMDs), which currently begin at age 73.
For decades, inheriting one of these accounts came with a powerful tax advantage known as the “stretch IRA.” This strategy allowed non-spouse beneficiaries—such as children or grandchildren—to spread those RMDs out over their own lifetimes. The result was smaller annual withdrawals, decades of continued tax-deferred growth, and potentially lower taxes overall. In many cases, an inherited IRA could be “stretched” across an entire lifetime if structured properly—making it a cornerstone of family financial planning
But that changed with the passage of the SECURE Act in late 2019, which went into effect for most inherited IRAs starting January 1, 2020. One of the biggest shifts introduced by this legislation was the elimination of the stretch IRA for most non-spouse beneficiaries. In its place: the 10-Year Rule.
So what exactly changed—and how do the two approaches compare?
length of time to withdraw funds
Stretch IRA (Pre-2020 Rules):
Under the old rules, non-spouse beneficiaries could base their required minimum distributions on their own life expectancy. For example, if a 30-year-old inherited a traditional IRA, the IRS would use their actuarial life expectancy—roughly 53 years—to determine the amount they had to withdraw each year. This approach spread out taxable distributions over decades, minimizing annual tax impact and allowing the bulk of the account to continue growing tax-deferred.
New Inherited IRA Rules (Post-SECURE Act):
Under the SECURE Act, most non-spouse beneficiaries must now withdraw the entire inherited IRA within 10 years of the original account holder’s death. There are no required annual distributions (unless the original owner had already started RMDs), but the full balance must be withdrawn by the end of year 10. That gives beneficiaries some flexibility in timing, but far less runway to let the funds grow tax-deferred.
tax implications
Stretch IRA:
Because the stretch IRA allowed for small, steady withdrawals over many years, beneficiaries could often keep their inherited distributions within lower tax brackets. This reduced the total amount paid in income taxes over time. Additionally, the longer the funds remained in the account, the more time they had to compound without being taxed.
New Inherited IRA (10-Year Rule):
Under the new rules, beneficiaries face a compressed timeline. Even though there’s no mandate to take distributions annually, the entire balance must come out within 10 years—and every dollar withdrawn is taxed as ordinary income. This can create a tax headache, especially if the beneficiary is in their peak earning years. Large lump sum withdrawals may bump the recipient into a higher tax bracket, significantly increasing their tax liability.
Exceptions to the 10-Year Rule
It’s worth noting that certain beneficiaries are still allowed to stretch distributions over their life expectancy. These include surviving spouses, minor children (until they reach the age of majority), chronically ill or disabled individuals, and beneficiaries not more than 10 years younger than the original IRA owner. For all others, the 10-year clock is ticking.
401Ks and IRAS: Structured inheritance with strategy needs
Retirement accounts like 401(k)s and IRAs can also be powerful tools for building generational wealth, though they come with more rules.
If your spouse is the beneficiary: Your spouse can roll the account into their own IRA and continue taking Required Minimum Distributions (RMDs) based on their life expectancy. This allows the account to continue growing tax-deferred, which can make a big difference over time.
If children or other heirs inherit the account: Non-spouse beneficiaries must open a beneficiary IRA. Under rules updated by the SECURE Act, most beneficiaries are now required to withdraw all the money within 10 years of inheriting it.
This 10-year rule can actually be strategic. For example, your heirs might spread withdrawals evenly over the decade to minimize tax impact. Or, if they expect a year with lower income (say, a job change or going back to school), they might take a larger lump sum then.
The key point is that these accounts don’t just vanish when you die—they can be carefully managed to benefit your loved ones. Some families even choose to use inherited retirement funds to seed new brokerage accounts or contribute to their own retirement accounts after paying the taxes
Bottom line
The end of the stretch IRA for most non-spouse beneficiaries represents a significant shift in estate and retirement planning. If you’re inheriting or planning to leave behind an IRA, it’s more important than ever to understand these new rules—and work with a financial advisor or tax professional to make the most of your options. Strategic withdrawals, Roth conversions, and trust considerations can all play a role in minimizing taxes and preserving wealth under the new framework.
*Disclaimer: This is for general informational and educational purposes only. It is not intended to constitute investment, legal, tax, or financial advice. Please consult your tax advisor and financial professional for advice tailored to your circumstances.
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