Stretch IRAs: The SECURE Act Rewrites the Rules
September 2, 2025
When Congress passed the SECURE Act in late 2019, the goal was to make retirement saving easier and more accessible. While the law introduced several helpful reforms, it also changed the rules for inherited IRAs and 401(k)s in a way that may affect your retirement strategy—or your ability to pass wealth to the next generation.
Before this law, many beneficiaries could “stretch” required distributions from inherited retirement accounts over their entire lifetime, spreading out the tax impact. Now, most non-spouse beneficiaries must empty the account within 10 years of the original owner’s death. That’s a big shift, and one with important tax and planning consequences.
Let’s break down what changed, the exceptions, and how to think about your withdrawal and investment strategy if you inherit a retirement account.
The New 10-Year Rule
For retirement accounts inherited from someone who passed away on or after January 1, 2020, the SECURE Act requires most beneficiaries to withdraw the full balance within 10 years.
If the original account holder had already reached their Required Minimum Distribution (RMD) age, you may also need to take annual distributions within that 10-year period. The IRS has waived penalties for missed RMDs through 2024, but beginning in 2025, those requirements kick back in.
Who Gets an Exception?
Not all beneficiaries are subject to the 10-year rule. The law allows certain Eligible Designated Beneficiaries (EDBs) to stretch withdrawals over their life expectancy. These include:
● A surviving spouse
● A minor child of the account owner (but not grandchildren)
● Someone who is no more than 10 years younger than the original account holder
● Individuals with qualifying disabilities or chronic illnesses
For these beneficiaries, stretching distributions often makes sense because it maximizes tax deferral and keeps funds invested for longer.
Four Common Scenarios for Inherited IRAs and 401(k)s
If you’re not a spouse or other eligible beneficiary, you’ll need to distribute all funds within 10 years. The right withdrawal approach depends on your financial situation. Here are four scenarios to consider:
1. Traditional IRA or 401(k): You Need the Income Now
If you expect your income and tax rate to stay steady, taking withdrawals in equal installments over 10 years may be the smartest move. Spreading the distributions helps avoid large tax bills and reduces the chance of pushing yourself into a higher tax bracket.
Investment tip: You may want to hold lower-growth assets (like bonds) in the inherited account and invest higher-growth assets (like stocks) in your own retirement accounts. This way, more of your growth remains sheltered for longer.
2. Roth IRA or Roth 401(k): You Need the Income Now
With Roth accounts, qualified withdrawals are tax-free. That makes a different strategy appealing: keep the funds invested as long as possible, then take a lump sum in year 10.
Investment tip: Consider putting higher-growth investments in the inherited Roth account, since future growth won’t be taxed.
3. Roth Account: You Expect a Change in Tax Situation
If you anticipate a shift in your tax picture, strategy matters. For example:
● Moving from a high-tax state to a no-tax state in retirement.
● Expecting a big jump in taxable income in a few years (e.g., from real estate, consulting, or Social Security).
If your taxes are higher today than they’ll be later, using your inherited Roth for current expenses could reduce your tax bill. On the other hand, if your taxes will rise, letting the Roth grow tax-free until year 10 may be the better play.
Investment tip: Like Scenario 2, prioritize higher-growth assets inside the Roth account to make the most of tax-free growth.
4. Traditional IRA or 401(k): You Want a Predictable Income Stream
Some people prefer certainty. In this case, you could roll the inherited funds into a period-certain immediate annuity that pays income for a set number of years. The payments must be scheduled so the account is fully depleted within 10 years.
While the withdrawals are still taxable, the annuity guarantees steady income and simplifies compliance with the 10-year rule.
Why Planning Matters
The SECURE Act changed inherited retirement accounts from a long-term tax shelter into a short-term planning challenge for many families. Depending on the type of account and your personal situation, the difference between a smart withdrawal strategy and a hasty one could mean thousands of dollars in taxes.
If you inherit an IRA or 401(k):
● Review whether you qualify as an Eligible Designated Beneficiary.
● Consider your current and future tax situation.
● Think carefully about which accounts to tap first.
● Revisit your estate plan if leaving retirement accounts to heirs is part of your strategy.
The Bottom Line
Inheriting an IRA or 401(k) is both a financial opportunity and a responsibility. The SECURE Act’s 10-year rule limits how long most beneficiaries can defer taxes, but with thoughtful planning, you can still make the most of your inheritance.
Every situation is unique, so it’s wise to consult with a financial or tax professional before making decisions. Aligning your withdrawal strategy with your broader retirement and estate plans can help ensure you maximize the benefit—for yourself and for the legacy you leave behind.
Sources:
https://www.fidelity.com/learning-center/personal-finance/retirement/secure-act-inherited-iras
Disclosure:
This information is an overview and should not be considered as specific guidance or recommendations for any individual or business.
This material is provided as a courtesy and for educational purposes only.
These are the views of the author, not the named Representative or Advisory Services Network, LLC, and should not be construed as investment advice. Neither the named Representative nor Advisory Services Network, LLC gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.