SECURE Act and Inherited IRAs – The Clarity You’ve Been Looking For

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In 2019, the ‘Setting Every Community Up for Retirement Enhancement’ (SECURE) Act had an enormous impact on how inherited IRAs are distributed to their heirs. The SECURE Act eliminated what was commonly known as the “Stretch Provision” previously given to inherited IRAs where the heirs could withdraw from the account over their lifetime and allow the invested assets to grow tax-deferred or exempt for many years. This was a huge advantage because it gives heirs flexibility and defers any required distributions for as long as possible, reducing or delaying tax liability. The minimum amount that’s required to be distributed from IRAs each year is called a “Required Minimum Distribution” (RMD).

In 2022, the IRS released proposed regulations that added additional rules to the original SECURE Act. The new SECURE Act 2.0 requires most non-spouse beneficiaries who inherit retirement assets on or after Jan. 1, 2020 to withdraw the full account balance within 10 years. Not following these proposed regulations could create substantial tax penalties so it’s important to understand how they might impact your inherited IRA.

The distribution requirements differ based on the deceased IRA owner’s age and the type of beneficiary. Please see the below definitions to see which distribution requirement you should be following. 

The proposed regulations are different for each category of beneficiary

Eligible Beneficiaries are spouses, minor children, disabled or chronically ill beneficiaries, and beneficiaries who are less than 10 years younger than the owner.

Eligible beneficiaries will need to take annual required minimum distributions (RMDs) based on their own life expectancy and do not fall into the 10-year distribution rule.

Qualified Beneficiaries are non-minor children, minor grandchildren, eligible beneficiaries who lose status (e.g. minors who become adults), and any successor beneficiary (e.g. inheriting an inherited IRA).

The rules for qualified beneficiaries depends on whether the IRA was inherited before the original owner’s RMD age (currently 72) or after. Qualified beneficiaries who inherited an IRA before the original owner’s RMD age do not need to take annual RMDs however the entire IRA must be distributed in 10 years. Qualified beneficiaries who inherited an IRA after the original owner’s RMD age would still need to distribute the entire IRA in 10 years but annual RMDs based on the beneficiary’s life expectancy are also required.

Non-Qualified Beneficiaries include estates, charities, and certain types of trusts.

For non-qualified beneficiaries, if the original owner passed away before RMD age, then the IRA would need to be fully distributed in 5 years with no annual RMDs. If the original owner passed away after RMD age, then annual RMDs would be required based on the original owner’s life expectancy also known as “ghost life expectancy”.

Roth IRAs

Roth IRA distributions are slightly different than traditional IRAs. Roth IRAs inherited after 2019 will be treated as having been inherited before the original owner’s RMD age. For qualified beneficiaries, this means that the account will still need to be fully distributed in 10 years, but there will be no annual RMDs.

Planning Ideas

  • Include inherited IRAs in your retirement withdrawal strategy. Working with a financial and tax advisor to strategically draw down inherited IRA balances could save you in potential taxes by drawing more in years where you might be in a lower tax bracket.
  • The SECURE Act’s flexible treatment of Roth IRAs could be an advantage in addition to the tax-exempt treatment of qualified distributions. Consult with your financial and tax advisor to see if this would be a good option for your situation.
  • Thoughtfully name beneficiaries for your retirement accounts because the treatment of inherited IRAs varies depending on the type of beneficiary receiving the assets.


While these regulations are yet to be finalized, it is important to review all options with your Client Advisor to align your financial plan with these proposals. Once finalized, the regulations will likely take effect with no grace period. Freestone is here to help you determine the best course of action and stay updated with new developments.

Important Disclosures: Nothing in this article is intended to provide, and you should not rely upon it for, accounting, legal, tax or investment advice or recommendations. We are not making any specific recommendations regarding any financial planning or tax strategy, and you should not make any financial planning or tax decisions based on the information in this article. The intention of this article is educational and it is intended only to discuss a few limited aspects of a very complex legislation. This article is not a comprehensive or complete summary of considerations regarding its subject matter. Each individual is in a different situation and has different items to address, and the options in this article are not appropriate for everyone. Please consult your Freestone client advisor and a tax professional regarding options specific to your needs.

Posted By: Freestone's Wealth Planning Team