What You Need To Know Now

Retirement accounts are among the most significant financial assets many Americans hold at death. At the end of 2025, IRAs alone held $19.2 trillion, while defined contribution plans—including 401(k), 403(b), 457, and similar plans—held another $14.2 trillion. Among families that own individual-account retirement assets, those accounts represented 65% of their financial assets, according to EBRI’s analysis of the Federal Reserve’s 2022 Survey of Consumer Finances. That’s why it’s important to get the planning right.

Planning for inherited retirement accounts used to be different. In many cases, beneficiaries could stretch distributions over their own life expectancy, which allowed for tax deferral and spread the income tax bill over years, or even decades, when IRAs were left to grandkids.

That changed significantly with the SECURE Act and the SECURE 2.0 Act. The SECURE Act was signed into law by President Donald Trump during his first term, with many of the changes taking effect beginning in 2020. It was followed by the SECURE 2.0 Act, signed into law by President Joe Biden, with some provisions effective immediately and others taking effect in later years.

Effectively, the stretch IRA no longer exists as an option for most non-spousal heirs of someone dying today. Instead, in most cases they must drain the account within 10 years.

Today, the treatment of an inherited retirement account depends on several issues, including when the account owner died, what type of account is involved, who the beneficiary is, whether the owner had already reached the required beginning date, and whether the beneficiary qualifies for a statutory exception. Adult children, surviving spouses, trusts, charities, minor children, and disabled or chronically ill beneficiaries can all face different outcomes. Here’s what you need to know.

The First Question: Date-of-Death

The most important question for beneficiaries is: When did the account owner die? Most of the major inherited-account changes apply when the original account owner died in 2020 or later. For many beneficiaries, that replaced the old “stretch” regime with a 10-year payout rule. For deaths before 2020, beneficiaries may still be under pre-SECURE Act rules.

The Follow-up Questions

To sort through the inherited-account rules, there are two more questions that you need to answer: What kind of account did the account owner have? And what was the relationship between the beneficiary and the now-deceased account owner?

Here’s why the first follow-up question matters: The rules may differ depending on whether the account is a traditional IRA, a Roth IRA, or a qualified employer maintained plan such as a 401(k), 403(b), 457.

With a traditional IRA, distributions are generally taxable as ordinary income when withdrawn, and inherited traditional IRAs are subject to post-death required minimum distribution (RMD) rules. With a Roth, the inherited account is still subject to post-death distribution rules, but most qualified Roth distributions are income-tax-free. Despite the fact that lifetime RMD rules differ for Roth owners, inherited Roth IRAs are generally subject to the same 10-year distribution rule as inherited traditional IRAs. SECURE 2.0 eliminated lifetime RMDs from designated Roth accounts in employer plans beginning in 2024, but inherited Roth accounts also remain subject to post-death distribution rules.

Qualified plans can be a little different. The tax code may allow a 10-year payout, a life-expectancy payout for an eligible designated beneficiary, or spousal rollover treatment, but the plan may offer fewer practical choices. An employer plan may be more restrictive than the tax code. In other words, the plan generally cannot permit a payout slower than the tax law allows, but it may require a faster one.

Who You Are Matters

Your relationship to the account owner has always mattered, but typically, it was a basic question: Were you married to the account owner?

Now, it’s a lot more complicated. The SECURE Act and the SECURE 2.0 Act introduced different levels of beneficiaries.

An eligible designated beneficiary (EDB) includes a surviving spouse, a minor child of the deceased account owner, a disabled individual, a chronically ill individual, and an individual no more than 10 years younger than the account owner. EDBs may often use life-expectancy payout rules rather than being subject immediately to the standard 10-year rule, though the exact option depends on the beneficiary category and the account terms.

A surviving spouse has the most flexibility. Depending on the facts, a spouse may be able to keep the account as an inherited account, roll it over, treat it as the spouse’s own IRA, delay distributions until the account owner would have reached the applicable RMD age, take life-expectancy distributions, or, in some cases, use the 10-year rule. There is no one-size-fits-all answer. For example, keeping it as an inherited IRA may allow penalty-free access before age 59½, whereas rolling it into the survivor’s own IRA can create early-distribution issues. If the spouse needs creditor protection, remarriage planning, or trust control, the best tax answer is not always the best estate-planning answer.

A minor child of the account owner only receives special treatment while a minor. Once the child reaches the age at which the special treatment ends, the 10-year rule generally kicks in, with the 10-years beginning at their age of majority.

Non-eligible designated beneficiaries are individuals designated as beneficiaries but who do not qualify as EDBs. That applies generally to adult children. Those beneficiaries are generally subject to the 10-year rule, which means the inherited account must be fully distributed by the end of the 10th year after the account owner’s death.

Non-designated beneficiaries include estates, charities, and some trusts. Their payout rules depend in part on whether the account owner died before or after their own required distribution start date. If the owner died before that date, the account may have to be drained within five years. If the owner died on or after that date, distributions may be based on the decedent’s age at death, and what the average life expectancy is for that age.

This is where the kind of account matters, too. For example, a beneficiary of a qualified retirement account may assume that the SECURE Act gives them 10 years to empty the account, but the plan may require a faster distribution or offer only limited payout options. That means it’s important to review your plan’s distribution materials and ask the plan administrator what distribution options are available.

When the Dates Matter (Again)

The pre-2020 split isn’t the only date that matters. The age of the account owner matters, too.

If a beneficiary is subject to the 10-year rule and the owner died before the owner’s required beginning date, the beneficiary generally must empty the account by the end of year 10. However, the beneficiary may not need to take annual RMDs during years one to nine.

But if the owner died on or after the required beginning date, beneficiaries who are subject to the 10-year rule generally must take annual RMDs during years one through nine and fully distribute the remaining account balance by the end of year 10.

SECURE 2.0 changed the age at which required minimum distributions begin. For many account owners, RMDs now begin at age 73. For younger account owners—generally those who reach age 74 after 2032—the starting age has increased to 75.

And since these rules are every bit as confusing as they sound, the IRS provided penalty relief for certain beneficiaries subject to the 10-year rule who did not take annual RMDs while the rules were unsettled. What that means is that many beneficiaries who inherited in 2020 to 2023 may not owe excise tax for missed annual RMDs during the relief period, but the account must still generally be emptied by the applicable 10-year deadline. IRS Publication 590-B says that if the 10-year rule applies, any remaining amount after December 31 of the year containing the 10th anniversary of death is subject to the excess-accumulation excise tax rules.

An excise tax is an additional tax imposed for failing to take a required action. For retirement accounts, the missed RMD excise tax applies when the amount distributed for the year is less than the required minimum distribution for that year. The tax is imposed on the shortfall—the difference between what should have been distributed and what was actually distributed—not on the entire account. And importantly, it does not replace income tax; it’s in addition to any income tax owed when the missed amount is eventually distributed. SECURE 2.0 made the penalty less severe, but not harmless. Be prepared to pay a default excise tax of 25% of the missed amount, with a possible reduction to 10% for timely correction.

Charitable Beneficiaries Can Be an Excellent Option

Leaving retirement accounts to charity can be a win-win. A charity generally pays no income tax on retirement-account proceeds, and the estate may receive an estate tax charitable deduction if the account is included in a taxable estate.

That’s in contrast to individual beneficiaries, who are generally subject to ordinary income tax. Mixing the two is allowed, but will require a little planning. When multiple beneficiaries inherit a single retirement account, the estate administrator may need to establish separate accounts to make sure that each beneficiary gets the best payout treatment.

Don’t Forget the Year-of-Death RMD

If the account owner died after reaching the required beginning date and had not yet taken the full RMD for the year of death, the beneficiary generally needs to ensure that the year-of-death RMD is satisfied. This is separate from the beneficiary’s own withdrawal. If that too sounds confusing, it can be. This is a very common missed step because beneficiaries and advisors may be focused on the 10-year rule and forget about the account owner’s final RMD.

Don’t Forget About Basis

Not all money in traditional IRAs is pre-tax. The account owner may have made nondeductible contributions to an IRA or made after-tax employee contributions to a work plan and then rolled the money into an IRA. That means a traditional IRA can have a mixture of pre-tax/after-tax balances.

The after-tax money creates an inherited “basis” in the account and can reduce the taxation of distributions. Be sure to review the account owner’s Form 8606 history, if available. Missing basis records can mean overpaying tax.

Roth Five-Year Rule

Inherited Roth IRAs are appealing because distributions may be income-tax-free, but don’t assume that every dollar is automatically tax-free. Roth IRA contributions have already been taxed, so those amounts are usually withdrawn tax-free, but earnings are treated differently if the Roth account is less than five years old at the time of withdrawal.

If the account owner didn’t own the Roth IRA for at least five years before the beneficiary takes a distribution, the earnings portion of the distribution may be taxable. Those five years are tied to the original account owner’s Roth IRA holding period, not a brand-new five-year period that starts when the beneficiary inherits the account.

And even when no income tax is due, the beneficiary must still meet the inherited account distribution deadline.

The Timing Trap

A non-spouse beneficiary may be able to move the inherited funds to an inherited IRA. But the movement generally has to be done as a direct trustee-to-trustee transfer—meaning the money moves directly from the old custodian or plan administrator to the new inherited IRA custodian.

What the beneficiary should generally not do is take a check made payable to them and then try to deposit it into an inherited IRA within 60 days. That’s something you can usually do with your own IRA. But if inherited IRA money is distributed directly to a non-spouse beneficiary, it is treated as a taxable distribution. Worse, the beneficiary may not be able to undo it by putting the money back into an IRA.

Final Notes

In the post-SECURE Act and SECURE 2.0 environment, inherited retirement planning is no longer simply about stretching distributions for as long as possible. The better approach is to work through the issues in order: Determine the beneficiary’s identity, confirm whether the account owner reached the required distribution beginning date, apply the correct payout rule, review the plan document, and then decide how to time distributions in light of the beneficiary’s tax situation.

That order matters. Move too quickly or answer questions in the wrong order, and you’re more likely to make one of a laundry list of common mistakes: missing the year-of-death RMD; assuming the 10-year rule means there are no annual RMDs; using the wrong transfer method; relying on trust provisions drafted under prior law; or ignoring how the distributions will affect the beneficiary’s own taxes.

We know. It shouldn’t be this complicated. But it is. Blame Congress.

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