The U.S. law on retirement account inheritance has been evolving. Under the original SECURE Act (passed in 2019), the “stretch IRA” strategy was largely eliminated. Instead, most non‐spouse heirs who inherited IRAs from someone dying January 1 2020 or later must withdraw the entire account within 10 years of the decedent’s death.

However, there was lingering ambiguity about whether beneficiaries must take annual RMDs (required minimum distributions) during those 10 years or just wait and drain the account by year 10. The Internal Revenue Service (IRS) clarified in new guidance that starting in 2025.

Key Changes

1. If you are a non-spouse beneficiary inheriting an IRA from someone who died on or after January 1, 2020, you’re subject to the “10-year rule” — the account must be fully distributed by December 31 of the tenth year following the owner’s death.
2. Under the new IRS guidance, if the original account owner had already begun RMDs at the time of death, then the beneficiary must take annual RMDs in each of years 1-9 and still finish the account by year 10.
3. If the original owner died before their required beginning date (RBD) for RMDs, then annual RMDs for the beneficiary may not be required — the beneficiary still must empty the account by year 10 but can choose when/how during those 10 years.
4. The penalty for failing to follow the rule is significant and could result in penalties of up to 25% which could be a significant amount.
5. These rules apply to both traditional and Roth IRAs (though tax consequences differ).

Why it Matters for Your Estate Plan

1. Tax timing: Instead of taking minimal withdrawals and letting assets grow for many years, heirs may now face more rapid withdrawals and higher taxable income in earlier years. If you are the IRA owner, you will want to take this into account when drafting your estate plan.
2. Planning flexibility is reduced: The ability to spread distributions over decades is largely gone for many non‐spouse beneficiaries. You must have a plan for full payout within 10 years.
3. Investment and lifespan planning: Since you may have a shorter horizon for tax-deferred growth, you might need to adjust investment strategy, withdrawal pacing, and tax strategy.

What Steps to Take if You Inherit an IRA

1. Consult with an attorney who is well-versed in estate and trust administration.
2. Check when the original owner died and whether they had already reached RMD age. This determines whether annual RMDs apply or whether you have more flexibility.
3. Empty the account by the end of year 10 after death.
4. Coordinate with your tax advisor and the IRA custodian: ensure the account is properly titled as an “inherited IRA” and that you comply with the schedule.
5. Avoid the penalty: missing required RMDs (when they apply) can incur a large excise tax.
6. Think about tax implications: large withdrawals can push you into higher tax brackets, affect Medicare premiums, financial aid, etc

The era of indefinite stretching of inherited IRAs is mostly over. There are, however, a few exceptions to these rules that you should consider before taking steps to change your estate plan. Whether you’re planning your own retirement distributions or navigating an inherited account, understanding how these changes apply to your specific situation is important. The attorneys at Thomas Mamer LLP can help you interpret the new law, update your estate plan, and create a strategy to minimize tax exposure for you and your heirs.