Inherited IRA Rules 2024: SECURE 2.0 and the 10-Year Rule

The Stretch IRA Is Gone — Mostly

Before December 31, 2019, an adult child inheriting a $1 million IRA could "stretch" distributions over their own life expectancy — 40+ years — allowing the account to compound largely tax-deferred for decades. The SECURE Act of 2019 eliminated the stretch IRA for most non-spouse beneficiaries, replacing it with a 10-year rule. SECURE 2.0 (signed December 2022) refined the details further, including a contentious clarification that certain beneficiaries must take annual RMDs within the 10-year window — not simply empty the account by year 10.

The IRS issued proposed regulations in 2022 and finalized guidance in 2024. After years of confusion, the rules now require non-eligible designated beneficiaries (non-EDBs) who inherit from an account owner who had already begun required minimum distributions to take annual RMDs in years 1 through 9, then fully empty the account in year 10. Those who inherited before the original owner reached their required beginning date still get to distribute on any schedule within the 10 years.

Beneficiary Classification and Applicable Rules

What the 10-Year Rule Actually Requires

The 10-year rule is measured from December 31 of the year of the owner's death. An adult child inheriting in March 2024 must fully distribute the account by December 31, 2034 — a full decade. If the original owner had reached their required beginning date (April 1 following age 73 under SECURE 2.0), the beneficiary must also take annual RMDs in years 1 through 9, calculated using the beneficiary's own life expectancy. Failure to take these annual RMDs triggers a 25% excise tax, reducible to 10% if corrected within a two-year window.

The IRS waived RMD penalties for inherited IRAs from 2021 through 2024 while issuing guidance. Starting in 2025, those penalties apply in full. Beneficiaries who skipped annual RMDs between 2021 and 2024 — relying on the waiver — must now catch up or face the excise tax on missed amounts going forward.

• The 10-year rule applies to inherited Roth IRAs too, but distributions from inherited Roths remain tax-free (no income tax, but the 10-year distribution requirement still applies)
• An inherited 401(k) follows similar rules; most plan documents require distribution within 10 years for non-spouses
• Qualified disclaimers can redirect inherited IRA assets to contingent beneficiaries, changing the applicable distribution rules

The Spousal Exception: Far More Flexible

Surviving spouses retain the most flexibility of any beneficiary class. A spouse who inherits an IRA has four options, not one:

• Treat as own IRA: Roll the inherited IRA into the surviving spouse's own IRA. The spouse's own RMD rules apply. This is usually optimal if the surviving spouse is younger than the deceased owner.
• Assume the IRA: Rename the account as an inherited IRA owned by the surviving spouse. RMDs use the surviving spouse's life expectancy starting when the deceased would have turned 73.
• 10-year rule election: Elected only if the surviving spouse dies before age 73 and wants a different RMD structure for subsequent beneficiaries.
• Life expectancy stretch: Available to spouses as an EDB option, distributing over the surviving spouse's own life expectancy.

Trust as Beneficiary: Complexity and Conduit Rules

Naming a trust as IRA beneficiary does not automatically provide the trust beneficiaries with EDB treatment. The trust must meet specific "see-through" or "look-through" requirements: it must be irrevocable at death, valid under state law, identifiable beneficiaries, and the trust document must be provided to the plan administrator by October 31 of the year after the owner's death.

The shift from stretch IRAs to the 10-year rule fundamentally changed inherited IRA tax planning. Adult children inheriting significant pre-tax IRAs now face compressed income recognition — potentially pushing them into the 32% or 37% bracket for the decade after inheritance. Roth conversions by the original owner during life, or decanting to charitable vehicles, have become important mitigation tools.

This article is for informational purposes only and does not constitute financial advice.