The 10-Year Rule: How Inherited IRAs Changed Forever After the SECURE Act

If you’ve recently inherited an IRA, the rules have changed—and the new landscape can create major tax surprises for families who aren’t prepared.

Before 1 January 2020, heirs could “stretch” an inherited IRA over their lifetime. A child or grandchild could keep that account growing tax-free for decades, passing it down again and again. The SECURE Act ended that strategy. Now, most non-spouse heirs must empty inherited retirement accounts within ten years.

That might sound manageable, but the details matter. If the original account owner had already started Required Minimum Distributions (RMDs), those must continue. If not, the heir has flexibility on when to withdraw—but all funds must be out by the end of the tenth year following the year of death.

The result? Many heirs could face huge tax bills when the clock runs out. A million-dollar traditional IRA, left untouched for ten years, can more than double in value. If withdrawn all at once in year ten, that income lands in the highest tax bracket—potentially wiping out years of compounding benefits.

Even if you take out the Required Minimum Distributions, it is likely that the account will still grow and become even larger than when it was first inherited.  Then the total will need to be withdrawn all in one tax year, all counting as income.

So, what can you do?

1. Plan withdrawals strategically. Spreading distributions equally across ten years can smooth out income and avoid bracket spikes. Equally does not mean just dividing it by 10.  You need to consider future gains.

2. Consider Roth conversions early. If you’re the account owner, converting portions to a Roth while in a lower bracket can protect your heirs from future tax hits.

3. Coordinate with professionals. Tax advisors and CFP® professionals can model various scenarios to balance growth, tax exposure, and estate goals.

4. Explore charitable options. Giving part of a pre-tax account to charity or using charitable remainder trusts can help offset taxable income while supporting causes you care about.

The key takeaway: The 10-year rule reshapes IRA inheritance planning. Without proactive steps, many families could face avoidable tax consequences as early as 2031, when the first wave of these rules comes due.

Thoughtful planning now can protect your legacy and your heirs’ financial future.

If you’d like help modeling your own strategy, I’d be happy to walk through your numbers and options.

Want to learn more, check out this video https://youtu.be/0hTORROh_d4

 Education only. Not financial, tax, legal, or investment advice. Past performance is not a guarantee of future results.