The Stretch IRA Is Dead and the 10-Year Clock Is Already Running

The Tax Shelter Your Parents Had, and You Won't

For about thirty years there was a quiet, enormously valuable feature buried in the inherited IRA. If your father left you his account, you could "stretch" the required withdrawals across your own life expectancy. A 45-year-old who inherited a $500,000 IRA could pull small amounts out for decades, let the rest compound tax-deferred, and hand what was left to the next generation. Financial planners built entire strategies around it. There were books.

That feature is gone, and it has been gone longer than most people who are about to inherit money realize. The SECURE Act took effect for anyone who died after December 31, 2019. If you inherit an IRA from someone who is not your spouse, the account has to be fully emptied by the end of the tenth year after their death. Not stretched over your life. Ten years, and then zero.

I have watched a lot of tax advantages get legislated away, usually with less notice than this one got. What makes the inherited IRA change worth writing about is not that it happened. It is that the people it will hit hardest still think the old rules apply, and the clock on their ten years may already be running.

What the Law Actually Did

Congress did not touch how much you inherit. It touched how fast the government gets its cut. A traditional IRA is money that was never taxed going in, so every dollar that comes out is ordinary income to whoever takes it. Under the old life-expectancy rules, a young heir could spread that income thin, taking maybe two or three percent a year and keeping most of it in a low bracket.

Compress the same account into ten years and the arithmetic turns hostile. You are now forced to recognize a large balance as income during what is often the highest-earning decade of your life, your forties and fifties, stacked on top of a salary that already fills up the lower brackets. The account did not get smaller. Your ability to control the tax on it did.

There is a reason the projections for this are measured in trillions. Something like $84 trillion is expected to change hands between generations over the next two decades, and a large slice of it sits in exactly these tax-deferred accounts. The ten-year rule is, in plain terms, the mechanism by which the Treasury pulls that revenue forward.

The Part Almost Everyone Missed

When the law passed, the common reading was simple and comforting: you have ten years, so let it grow and take it all out in year ten if you want. Plenty of people are still operating on that assumption. It is wrong, and the way it went wrong is instructive.

In 2022 the IRS issued guidance that surprised even the professionals. If the person you inherited from had already reached the age where they were taking their own required distributions, then you, the heir, must also take a required minimum distribution in each of years one through nine, and still empty the account by year ten. Two obligations, not one.

The rule was confusing enough that the IRS waived the penalty for missed distributions in 2021 through 2024 while it sorted out the final regulations. That grace period is over. Beginning in 2025, those annual withdrawals are mandatory, and the penalty for skipping one is a quarter of the amount you should have taken, reducible to ten percent if you fix it quickly. A lot of people treated the waiver as the rule. It was a stay of execution, and it expired.

Run the Numbers on a Perfectly Ordinary Inheritance

Forget the half-million-dollar accounts for a moment. Take a $400,000 IRA left to a daughter who earns $110,000 and files single. Nothing about that is exotic.

Spread evenly, she is adding roughly $40,000 of income a year for ten years, and because it lands on top of her salary, most of it is taxed at 24 percent, some of it higher. Call it around $10,000 a year in federal tax alone, more in a state with an income tax, for a decade. That is close to $100,000 of the inheritance going to taxes that, under the old rules, could have been spread across forty years and largely absorbed in low brackets.

The cruelty of the design is that the compression tends to happen at the worst time. People inherit from parents in their fifties, which is when their own earnings peak. The forced income arrives precisely when their bracket is already full. This is the same problem that makes the timing of retirement withdrawals matter so much, a subject I have gotten into before with the target-date funds most people misread, except here you do not get to choose the timing at all.

Who Still Gets to Stretch

The old life-expectancy treatment did not vanish for everyone. The law carved out a category it calls eligible designated beneficiaries, and if you fall into it, you can still stretch.

A surviving spouse is the clearest case, and a spouse has options no one else has, including rolling the account into their own. Beyond that, the exemptions are narrow: a beneficiary who is disabled or chronically ill under the tax code's specific definitions, a beneficiary who is not more than ten years younger than the person who died, which usually means a sibling or a partner close in age, and a minor child of the account owner, though that last one is a trap worth naming. The minor child gets life-expectancy treatment only until they reach the age of majority, and then the ten-year clock starts. So the child's exemption is really a delay, not an escape.

If you are an adult child inheriting from a parent, which is the most common inheritance there is, you are almost certainly not eligible. You are in the ten-year world.

The Roth Wrinkle Worth Understanding

Inherited Roth IRAs are also subject to the ten-year rule, and people find this counterintuitive because Roth withdrawals are tax-free. If it is tax-free, why does the deadline matter?

It matters because the value of a Roth is the tax-free compounding, and the clock caps how long you get it. A Roth you could stretch over forty years is a forty-year tax-free growth engine. A Roth you must empty in ten is a ten-year one. There is a small mercy here: because a Roth owner is never required to take distributions during their lifetime, an inherited Roth does not carry the year-one-through-nine annual withdrawal requirement. You can let it ride for the full ten years and take it all at the end, which for a tax-free account is exactly what you should usually do. Empty it on the last day the rules allow and not a day sooner.

Before the First of Ten Years Slips By

The mistake I expect to see most is inaction disguised as patience. Someone inherits an account, hears "ten years," and files it under later. Then year seven arrives, they wake up to a balance that has grown, and they cram three-quarters of a large IRA into three tax years because they were not paying attention to the calendar.

The better approach is boring, which is how you know it works. Figure out first whether the person you inherited from had started their own required distributions, because that single fact tells you whether you owe annual withdrawals or not. Then, in the years your own income dips, a gap between jobs, a lower-earning year, a year with large deductions, take more than the minimum on purpose to bleed the account down while your bracket has room. You are managing a ten-year tax problem, not a one-time windfall, and the people who treat it as a project instead of a surprise keep tens of thousands of dollars that the calendar would otherwise take. The clock does not care whether you were watching it. It runs either way.