What Really Happens To An Inherited IRA Now? The SECURE Act’s Rules Might Surprise You

If you inherited an IRA in the last few years, did anyone actually tell you there’s a clock running on it? Many beneficiaries assume they can leave the account alone for decades, the way earlier generations did. That assumption is now outdated, and the rules that replaced it have confused even people who work with money for a living. As Daytona Beach estate planning attorneys, we spend a fair amount of time walking clients through exactly what these accounts require now.

The End of the “Stretch” IRA

For years, a non-spouse beneficiary could stretch distributions from an inherited IRA across their own life expectancy, sometimes for 40 or 50 years. The SECURE Act, signed into law in December 2019, ended that option for most beneficiaries. In its place came what is commonly called the 10 year rule.

What the 10 Year Rule Actually Requires

Here’s the part that trips people up. The rule works differently depending on whether the original account owner had already started taking required minimum distributions before they died.

• If the original owner died before their required beginning date, the beneficiary generally just needs to empty the account by December 31 of the tenth year following the year of death. No annual withdrawals are required along the way, only the final deadline matters.
• If the original owner died after their required beginning date, the beneficiary must typically take annual withdrawals throughout the 10 year period, in addition to fully emptying the account by the end of year ten.
• Certain beneficiaries are treated differently, including surviving spouses, minor children of the original owner, disabled or chronically ill beneficiaries, and beneficiaries who are not more than 10 years younger than the original owner. These “eligible designated beneficiaries” may still be able to stretch distributions over their own lifetimes.
• Roth IRAs are still subject to the 10 year rule, but since Roth accounts never required lifetime distributions from the original owner, beneficiaries are not forced into annual withdrawals, only the 10 year deadline applies.

So why did this take years to sort out? The IRS proposed regulations in 2022, faced enormous confusion and public comment, then issued final regulations in July 2024. Those final regulations confirmed that annual withdrawals are required in certain cases, while also delaying enforcement and waiving penalties for missed distributions in 2021 through 2024. Beginning in 2025, beneficiaries subject to annual RMDs are expected to actually take them.

Does that mean every inherited IRA needs to be emptied on a strict schedule? Not necessarily, and this is where a bit of planning can matter. Since the entire distribution is generally taxable income, when you take the money can meaningfully change what you owe. Waiting until the final year might push a beneficiary into a higher tax bracket all at once, while spreading withdrawals earlier could smooth things out.

Inherited retirement accounts rarely arrive with a clear instruction manual, and the rules have shifted more than once in the last five years alone. At Bundza & Rodriguez, P.A., our Daytona Beach estate planning lawyers can review your inherited IRA alongside the rest of your estate plan to help you avoid a costly surprise. Reach out and let’s make sure your withdrawal timeline actually fits your situation.

Source:

irs.gov/retirement-plans/retirement-plan-and-ira-required-minimum-distributions-faqs