The SECURE Act, SECURE 2.0, and the New Rules for Inherited IRAs
The SECURE Act — “Setting Every Community Up for Retirement Enhancement” — took effect January 1, 2020, and fundamentally changed how inherited retirement accounts are taxed. A follow-up law, SECURE 2.0, made further changes effective in 2023. Together, these laws eliminated the “stretch IRA” strategy for most beneficiaries and replaced it with a 10-year distribution window — a change that significantly affects estate planning for anyone with substantial IRA, 401(k), or other qualified retirement plan assets.
The Required Minimum Distribution (RMD) Age Has Increased — Twice
Under the original SECURE Act, the RMD starting age moved from 70½ to 72. SECURE 2.0 raised it again: for individuals turning 73 in 2023 or later, the RMD starting age is now 73, and it is scheduled to increase to 75 for those turning 75 in 2033 or later. Account owners should confirm their own RMD start date based on their birth year, since the applicable age depends on when they reach the relevant threshold.
The 10-Year Rule for Inherited Accounts
Most beneficiaries who inherit a retirement account must now withdraw the entire balance within 10 years of the original owner’s death — there is no requirement to take distributions in any particular year during that period for most beneficiaries, but the account must be empty by the end of year 10. This is a significant departure from the old “stretch IRA” approach, under which a young beneficiary could spread distributions — and the associated income tax — over their own life expectancy, often decades.
Eligible Designated Beneficiaries (EDBs) are exempt from the 10-year rule and may still stretch distributions over their life expectancy. EDBs include: (1) the surviving spouse; (2) a minor child of the account owner, until reaching the age of majority (at which point the 10-year clock begins); (3) a disabled individual, as defined under IRC §72(m)(7); (4) a chronically ill individual, as defined under IRC §7702B(c)(2); and (5) any individual not more than 10 years younger than the deceased account owner.
Why This Matters for Your Estate Plan
The 10-year rule has significant implications for trusts named as IRA beneficiaries, particularly “conduit” trusts originally drafted to take advantage of stretch-IRA life expectancy payouts — those trusts may now force a full distribution (and the associated tax hit) within 10 years regardless of the trust’s other terms. It also changes the income tax planning calculus for Roth conversions, charitable beneficiary designations, and the choice between leaving retirement accounts to a surviving spouse versus directly to children or a trust.
If your estate plan was drafted before 2020 — or even before 2023 — it was very likely drafted around assumptions that no longer apply. A review is worthwhile even if no other changes have occurred in your life.