The SECURE Act of 2019 created a major shift in how inherited IRAs are managed. Before the law changed, non-spouse beneficiaries were generally able to “stretch” required minimum distributions (RMDs) over their lifetimes, reducing yearly tax exposure.
Today, most beneficiaries who inherit an IRA from someone who passed away in 2020 or later must follow the 10-year rule, meaning the entire account must be fully distributed within ten years of the original owner’s death.
Beginning in 2025, beneficiaries of IRA owners who had already begun taking RMDs will also be required to take annual distributions during the 10-year period, creating an additional layer of complexity.
For many families, the impact becomes more significant as they reach years 5 through 10 of this window. Delaying distributions until the final years can cause large, taxable withdrawals that push beneficiaries into higher tax brackets.
A Five-Step Framework for Understanding the Distribution Process
Below is a clear approach to help beneficiaries and advisors evaluate inherited IRA planning under the SECURE Act. While every situation is unique, this framework offers a structured starting point.
- Identify the Beneficiaries and Key Dates
The first step is confirming who inherited the IRA, when the account owner passed away, and when the 10-year window closes. Beneficiaries should also determine whether the original owner had already begun taking RMDs, as this may trigger annual distribution requirements beginning in 2025.
This foundational information helps establish the distribution timeline and potential urgency for planning.
- Segment Accounts by Approximate Size
The size of the inherited IRA significantly influences planning options. Smaller inherited IRAs may be manageable with a straightforward annual distribution plan. Larger accounts, however, often require more intentional pacing over several years to avoid substantial tax consequences.
Segmentation helps determine whether a basic or more advanced distribution analysis is appropriate.
- Run a Basic Analysis for Smaller Account Balances
For inherited IRAs below a certain threshold, a simple projection may be sufficient. Beneficiaries can estimate annual withdrawals by dividing the account balance across the remaining years in the 10-year period.
This helps spread taxable income more evenly and reduces the risk of a large lump-sum distribution in year ten.
However, income fluctuations, expected retirement, or major life changes may warrant adjustments to even-year distributions, even for smaller accounts.
- Conduct an Advanced Analysis for Larger Balances
Larger inherited IRAs often benefit from more detailed modeling. Factors such as:
- Current and projected income
- Anticipated retirement timelines
- Investment growth rates
- Changes in tax laws
- Broader estate planning goals
All play a role in determining when distributions should occur.
In many cases, taking larger withdrawals early in the 10-year period can reduce overall taxes. In other cases, delaying withdrawals until the beneficiary retires or moves into a lower tax bracket may be more favorable.
Roth inherited IRAs require a different approach. Although Roth beneficiaries are not taxed on distributions, they may still prefer to spread withdrawals over time to manage market risk and avoid concentrating distributions in a single year.
- Implement and Review the Strategy Regularly
Once a distribution plan is selected, ongoing monitoring is essential. Income levels change, laws evolve, and investment markets fluctuate. Reviewing the plan annually helps ensure the strategy remains aligned with the beneficiary’s financial circumstances and any updates to federal tax rules.
Because SECURE Act planning spans a full decade, a consistent, long-term review process is key.
Why This Matters
The SECURE Act’s 10-year rule has reshaped inheritance planning. Without a clear strategy, beneficiaries may face unexpected tax burdens or lose opportunities for tax-efficient withdrawals. Understanding these rules early allows families to make informed decisions and avoid avoidable tax consequences during the final years of the 10-year period.
We Are Here to Help
The Law Offices of Charles L. Kurmay assists Connecticut families and beneficiaries navigating complex inheritance issues, including SECURE Act implications, international estate matters, and cross-border wealth transfers.
If you or your clients have questions about inherited IRAs, strategic distribution planning, or how these rules fit into a broader estate plan, we are here to help.
Call (203) 380-1743 to schedule a confidential consultation.
