So, You’ve Inherited an IRA: What’s Next?
Understanding the Post-SECURE Act Rules and Planning Opportunities
Inheriting a retirement account is often a turning point—both emotionally and financially. Whether you’ve lost a spouse, parent, sibling, or close friend, the process of receiving an inherited IRA can feel overwhelming. Beyond navigating grief and loss, beneficiaries must also quickly make important financial decisions with long-term consequences.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in 2019 and effective for IRAs inherited on or after January 1, 2020, significantly changed the rules for inherited traditional IRAs and Roth IRAs. Many longstanding strategies—like the ability to “stretch” IRA withdrawals across a beneficiary’s lifetime—have been eliminated for most non-spouse heirs. The new framework introduces mandatory timelines, added tax pressure, and a more nuanced set of exceptions for certain types of beneficiaries.
For high-net-worth individuals, ultra-affluent families, business owners, and executives, the stakes are even higher. Large inherited traditional IRAs often come with significant tax exposure. Without proper planning, beneficiaries may unintentionally accelerate income, trigger additional Medicare premiums, or disrupt multi-generational wealth transfer strategies. This whitepaper offers a structured overview of the post-SECURE Act landscape and key strategies that help align inherited assets with long-term goals.
You’ll learn:
- How inherited IRA rules differ based on your relationship with the original account owner
- What distribution timelines and tax considerations now apply
- Why high-income and high-asset beneficiaries need proactive tax coordination
- How to use professional guidance to align inheritance with legacy planning, philanthropic goals, and long-range cash flow modeling
1. The SECURE Act and the End of the “Stretch” IRA
What Changed?
Prior to the SECURE Act, many beneficiaries—especially younger heirs or those inheriting large IRAs—could use a “stretch” strategy that allowed Required Minimum Distributions (RMDs) over their lifetimes. This offered decades of tax-deferred growth. That strategy is now largely unavailable to non-spouse beneficiaries. Instead, the 10-year rule often mandates that the entire IRA balance must be withdrawn within a decade.
For those inheriting seven- or eight-figure IRAs, this change has profound implications. Without planning, beneficiaries could be forced into the highest tax brackets, erode decades of compounding, and face inefficient estate distribution.
Key Points:
- The 10-year clock begins on January 1 of the year following the account owner’s death
- RMDs during the 10-year window may still apply if the original owner had started their own RMDs
- Timing of withdrawals can affect exposure to top marginal rates, net investment income tax (NIIT), and state income taxes
- Spreading withdrawals strategically across multiple tax years can help mitigate compressed tax consequences and align with philanthropic intent or business liquidity events
Sample Case Study:
Laura, age 45, inherits a $750,000 Traditional IRA from her uncle in 2024. Her advisor explains that, under the SECURE Act, she must withdraw the full balance within 10 years. Because her uncle had already begun RMDs, Laura must also take distributions annually. Without a withdrawal plan, she risks being pushed into the highest income tax bracket and triggering penalties. Working with her advisor, she spreads withdrawals evenly over 10 years, limiting tax spikes and aligning distributions with charitable giving in high-income years.
Key Takeaway:
Without a clear withdrawal strategy, high-income beneficiaries risk compounding tax burdens. Coordinated distributions—especially when aligned with charitable giving or lower income years—can preserve more of the inheritance.
2. Spousal Beneficiaries Still Have Flexibility
What Can Spouses Do?
Surviving spouses uniquely have the option of rolling over the inherited IRA into their own IRA or deferring distributions until the original owner would have turned 73 (if the original owner was not already taking RMDs) For affluent surviving spouses, the ability to choose between rolling the IRA into their own or maintaining it as an inherited IRA provides meaningful flexibility. These options can support broader planning around Social Security timing, executive compensation plans, or the coordination of trust-based wealth structures.
Spouses can consider factors such as asset consolidation, current versus future tax brackets, and the potential impact on Qualified Charitable Distributions (QCDs) or Medicare premium thresholds when determining the best path forward.
Key Points:
- Spousal IRA rollover delays RMDs until April 1 after the spouse turns 73, allowing ongoing tax-deferred growth
- Inherited IRA option may be preferable for younger spouses under 59½ to avoid early withdrawal penalties. In other situations, it can be advantageous to use the deceased spouse’s life expectancy for calculation of RMDs
- Coordination with estate plans may influence the decision if the surviving spouse is trustee of a bypass or marital trust
- High-income earners should evaluate the interaction with other income sources, Roth conversion opportunities, and gifting strategies
Sample Case Study:
Alan, age 60, inherits a $1.2 million IRA from his spouse, a retired executive. He chooses to roll the account into his own IRA, deferring RMDs until age 73. This preserves tax-deferred growth and simplifies the estate. In years where his consulting income is lower, Alan and his advisor also evaluate partial Roth conversions to manage future RMD exposure and leave a more tax-efficient legacy to their children.
Key Takeaway:
Spousal rollovers offer unique flexibility for affluent individuals, often allowing better alignment with business income, Roth conversion strategies, and legacy goals.
3. Eligible Designated Beneficiaries (EDBs) – A Special Category
Who Qualifies?
Understanding whether a beneficiary qualifies as an Eligible Designated Beneficiary (EDB) can unlock advanced planning opportunities. These individuals may continue to take RMDs based on life expectancy rather than facing the compressed 10-year timeline.
This can support strategies such as deferring income across life stages, reducing volatility in family cash flows, or integrating income with special needs planning.
Key Points:
- EDBs include minor children (until age of majority under state law), disabled and chronically ill individuals, and those not more than 10 years younger than the decedent
- Stretch treatment provides tax-deferral and allows for smoother multi-year income planning
- For minor children, transition to the 10-year rule at the age of majority requires advance planning to avoid future tax surprises
- Coordination with special needs trusts is critical to preserve benefits and manage cash flow responsibly
Sample Case Study:
Sophia, age 14, inherits a $3 million IRA from her mother. As a minor, she qualifies as an EDB and can take distributions over her life expectancy. Upon turning 21, the 10-year rule begins. Her guardian, working with the family’s advisory team, establishes a phased withdrawal schedule that funds Sophia’s education, provides for early career support, and avoids large tax spikes. The strategy also coordinates with other trust distributions set to begin in her 30s.
Key Takeaway:
Properly structured EDB strategies offer time to integrate inheritance into long-term planning—but only if transition points like the age of majority are anticipated and planned for.
4. What If the Beneficiary Is a Trust, Estate, or Charity?
Non-Designated Beneficiaries Face a Faster Timeline
For estate plans that direct non-Roth retirement assets to a trust, charity, or estate, the timeline for required distributions may be accelerated depending on how the trust is structured. In many families, trusts are used to exert control, protect assets, or create governance structures across generations. But unless the trust qualifies as a “see-through” trust, the IRA may need to be emptied in five years.
Executors and trustees must evaluate the implications of income flowing into irrevocable trusts, often subject to compressed tax brackets and less favorable distribution treatment.
Key Points:
- Non-designated beneficiaries do not qualify for the 10-year rule
- The entire account must be distributed within 5 years following the year of the account owner’s death. The rules for distributions during the five years vary based on whether or not the account owner had started to take RMDs
- Qualified see-through trusts can allow designated beneficiary treatment, but must meet strict IRS criteria
- Trust distributions may create opportunities or risks depending on the trust’s tax status, the age of beneficiaries, and its terms
Sample Case Study:
Robert, a business owner, leaves a $2.5 million IRA to a trust for the benefit of his grandchildren. The trust fails to meet the IRS’s see-through requirements. As a result, the entire IRA must be distributed within five years. The trustee distributes $500,000 per year, resulting in significant income taxes due at the trust level. A properly drafted conduit trust could have provided more tax-efficient treatment and better alignment with Robert’s multigenerational intent.
Key Takeaway:
Trust planning is essential when designating non-individual beneficiaries. Without the right structure, heirs may face accelerated distributions, trust-level tax rates, and unintended consequences.
5. Roth IRAs – Still Tax-Free, But Not Rule-Free
Inherited Roth IRAs Still Require Planning
While Roth IRAs offer tax-free withdrawals, the 10-year rule still applies. For affluent families, the Roth often serves as a strategic bucket for future heirs—and can be a critical component of long-term, multi-generational tax planning. Heirs who do not need immediate funds may allow the Roth to grow untouched for 10 years, withdrawing in year 10 for maximum value.
This section highlights how Roth IRAs can support philanthropic goals, family education planning, or serve as liquidity during business transitions without increasing taxable income.
Key Points:
- No tax owed on qualified distributions, regardless of size, as long as the original owner held the Roth IRA for at least five years before death
- Allowing the Roth IRA to grow untouched can provide a valuable legacy asset with no tax drag
- Ideal for heirs in peak earning years, enabling them to supplement lifestyle or philanthropy without additional tax burden
- 10-year rule applies to many non-spouse beneficiaries, but no RMDs during that period
- The surviving spouse may roll the inherited Roth IRA into their own IRA or treat the Roth as an inherited IRA
- Minor children may take RMDs based on their life expectancy until the age of majority under state law, at which time the 10-year rule applies but without RMDs.
- Disabled or chronically ill individuals may take RMDs based on their life expectancy for their lifetime
- Individuals not more than 10 years younger than the IRA owner may may take RMDs based on their life expectancy for their lifetime
- Estates and trusts are generally subject to the 5 year rule, but certain exceptions may apply for qualified see-through trusts
Sample Case Study:
Ava, age 40, inherits a $1.1 million Roth IRA from her father, a retired entrepreneur. Ava earns a high salary as a corporate attorney and doesn’t need the funds immediately. Her advisor recommends she let the Roth grow tax-free for 10 years. When she withdraws the funds in year 10, the account has grown to $1.7 million, all tax-free. The timing allows her to reduce reliance on taxable income during a sabbatical while maintaining charitable contributions to the family’s donor-advised fund.
Key Takeaway:
Inherited Roth IRAs can be powerful tools for tax-free legacy planning—especially when timed with income gaps, charitable giving, or long-term cash flow needs.
6. Mistakes Can Be Expensive
Non-Compliance Comes with Penalties
Missteps in inherited IRA management can have outsized consequences for high- and ultra-high-net-worth families. Penalties, missed RMDs, or inefficient tax treatment can derail estate plans, disrupt wealth transfers, or expose heirs to unnecessary taxes and scrutiny. The cost of inaction or misinterpretation can reach hundreds of thousands of dollars—or more.
For business owners or executives, failing to coordinate inherited IRA strategies with other income events (e.g., stock option exercises, bonus payouts, asset sales) can also result in lost tax alpha.
Key Points:
- Missed RMDs incur a 25% penalty (can be reduced to 10% if corrected timely)
- Year 10 lump sum withdrawals can cause massive income tax spikes and impact Medicare premiums, surtaxes, and state liabilities
- Improper trust designation can negate long-term legacy intentions
- Professional oversight can ensure alignment with broader wealth goals, tax brackets, and philanthropic strategies
Sample Case Study:
Daniel, age 55, inherits a $3.5 million Traditional IRA from his aunt, a former real estate investor. He mistakenly believes no action is needed until year 10. By failing to take RMDs from years 1–9, he incurs substantial penalties. Worse, his forced lump-sum withdrawal in year 10 triggers the top federal tax rate, additional Medicare surcharges, and loss of tax credits for his children’s education expenses. His advisor later reconstructs the withdrawal strategy that could have saved over $700,000 in taxes and penalties.
Key Takeaway:
Missteps in inherited IRA distribution can lead to massive, avoidable tax consequences. Sophisticated guidance early in the process helps avoid penalties and supports better long-term outcomes.
Final Thoughts: Inheritance Is a Gift—Plan Wisely
Inheriting an IRA or Roth IRA can be a powerful financial opportunity—or a costly burden. The rules are more complex than ever, and the penalties for mistakes can be severe. Whether you’re a spouse, child, sibling, or charitable organization, the best outcomes happen when you seek guidance early.
At Waverly Advisors, we help beneficiaries make informed decisions that align with their long-term goals while complying with IRS requirements. Every scenario is unique—let us help you develop a strategy tailored to yours.
If you would like more information about the terms and strategies discussed in this guide, or if you’re ready to explore how they apply to your specific situation, contact Waverly Advisors. With experience working with individuals, families, and executives managing significant wealth, we specialize in creating tailored strategies with the goal to help you grow, protect, and transfer your assets effectively.
MEET THE AUTHOR
Scott Collins, JD, LL.M
Partner, Wealth Advisor
Scott Collins joined Waverly Advisors in April 2025 following the acquisition of Fiduciary Wealth Advisors by Waverly Advisors, LLC. As a Partner and Wealth Advisor at Waverly, Scott brings years of experience in Investment Management, Retirement Planning, Estate Planning, Tax Planning, Generational Wealth Planning, and Charitable & Family Gifting. Scott finds great fulfillment in… Learn More
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