"Before January 1, 2020, beneficiaries enjoyed remarkable flexibility with inherited IRAs. The stretch IRA strategy allowed heirs to take small annual distributions based on their life expectancy, keeping most funds growing tax-deferred for decades. This meant a middle-aged beneficiary could preserve the tax-advantaged status of an inheritance well into retirement. The SECURE Act changed everything for most beneficiaries. Non-spouse heirs must now empty the entire inherited IRA within 10 years of the original owner's death."
"The compressed timeline creates a significant tax problem. Consider a 45-year-old beneficiary inheriting a $500,000 IRA during peak earning years. Under the old rules, they could have stretched distributions across three decades, taking smaller amounts in lower tax brackets. Now forced to withdraw everything within 10 years, those same dollars get stacked on top of their highest-earning years, potentially pushing substantial portions into the 32% or 35% federal brackets instead of the 22% or 24% brackets they might have used with a stretch strategy."
Most non-spouse beneficiaries must now empty inherited IRAs within ten years under the SECURE Act, eliminating the long-term stretch-IRA life-expectancy withdrawals. Beneficiaries may delay annual withdrawals within the ten-year window but must fully distribute by December 31 of the tenth year after the owner’s death. The compressed timeline can force large taxable income increases during peak earning years, stacking IRA distributions into higher federal tax brackets. Spreading withdrawals evenly over ten years typically raises taxes moderately compared with the old stretch approach, while deferring to a single lump-sum withdrawal in year ten produces the largest tax hit.
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