Stretch IRA Ten Year Rule
Jason Stolz CLTC, CRPC
Stretch IRA Ten Year Rule — After the SECURE Act 2.0, most non-spouse beneficiaries must drain inherited IRAs within 10 years instead of “stretching” required minimum distributions (RMDs) over a lifetime. On this page, Diversified Insurance Brokers explains who’s affected, which beneficiaries qualify for exceptions, how the 10-year clock works (including annual RMD considerations), and practical strategies to manage taxes, preserve flexibility, and avoid penalties.
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What You’ll Learn
- Who the 10-year payout rule applies to and who is exempt
- How the 10-year clock is calculated and when annual RMDs may still apply
- Tax-smart distribution strategies (front-load, back-load, or phased)
- How beneficiary type, age, and account owner’s status at death affect timing
What Changed: From “Stretch” to Ten Years
Before the SECURE Act 2.0, many non-spouse beneficiaries could “stretch” RMDs over their life expectancy, deferring taxes for decades. Under current rules, most non-spouse beneficiaries must withdraw the entire inherited IRA by the end of the 10th year following the original owner’s death. The result: a shorter deferral window and potentially higher taxable income if distributions are bunched in high-income years.
Who Must Use the 10-Year Rule?
Generally, adult children and other non-spouse beneficiaries fall under the Stretch IRA Ten Year Rule payout requirement. The year of death matters because it starts the compliance timeline: the deadline is usually December 31 of the 10th year after death. If the original owner had already begun RMDs, some beneficiaries may also have to take annual RMDs in years one through nine and still empty the account by year ten. Because the nuances are technical, align your schedule with your tax pro.
Eligible Designated Beneficiaries (EDBs)
EDBs receive more favorable treatment than the standard 10-year window. They include surviving spouses, minor children of the decedent (until majority), disabled individuals, the chronically ill, and beneficiaries not more than 10 years younger than the decedent. These categories can use life-expectancy (stretch-like) payouts in many cases, though rules vary as minors age into majority or circumstances change.
How the 10-Year Clock Works
Start date: The year after the original owner’s death is “Year 1.” The account must be depleted by the end of “Year 10.”
Annual RMDs vs. “anytime” withdrawals: If the decedent died before their required beginning date (RBD), beneficiaries typically can withdraw in any pattern as long as the account is empty by Year 10. If the decedent died on or after the RBD, beneficiaries may need to take annual RMDs in years one through nine and fully distribute by Year 10. When in doubt, get a written calendar so nothing is missed.
Tax-Smart Distribution Strategies
There’s no one-size-fits-all schedule. Your current and expected future tax bracket, other income, and investment horizon drive the optimal plan. Here are three common approaches:
- Even pacing (years 1–10): Withdraw roughly equal amounts annually to distribute the tax burden and reduce bracket spikes.
- Back-loaded: Defer withdrawals to later years if you expect lower income (e.g., retirement), but beware market volatility and compressed timelines.
- Front-loaded: Take more in early years if you expect rising income later or want to reposition funds for other planning goals.
If health events could change your needs or tax profile, compare the protection value of supplemental coverage. For example, some families evaluate long-term care insurance options for retirees to safeguard assets they aim to preserve for heirs.
Trusts as Beneficiaries: Proceed Carefully
Naming a trust can help with control, creditor protection, and special circumstances, but the 10-year rule may still apply. “See-through” trust requirements and conduit vs. accumulation structures affect payout speed and tax hit. If you anticipate special caregiving or oversight needs, review life insurance, trusts, and care planning together. Two useful primers from our library: special needs life insurance solutions and why a special needs trust matters.
Coordinating With Business or Practice Owners
Beneficiaries who run a business must consider cash flow and disability risk while coordinating distributions. If a sudden income drop or health event could jeopardize operations, a safety net matters. Explore disability business overhead expense coverage to keep lights on while you manage RMD timing and tax brackets under the 10-year schedule.
Repositioning and Liquidity Planning
Some beneficiaries convert inherited IRA withdrawals into flexible cash buckets or guaranteed income streams. If you intend to sell a life policy to raise liquidity during the 10-year window, understand the tradeoffs first (taxes, valuation, and future protection). Our overview, sell my life insurance policy, outlines scenarios when a life settlement could make sense and what to evaluate.
If guaranteed lifetime income for a surviving spouse or special beneficiary is part of your plan, compare structures in lifetime income annuity strategies. Short-term gaps can be bridged with the right interim coverage—see short-term medical insurance coverage for transition periods while assets are repositioned.
Examples & Scenarios
Scenario 1 — Adult child beneficiary: Parent dies in 2025 before their RBD. The child sets Year 1 as 2026 and plans equal withdrawals over 10 years. Market growth keeps the balance steady; taxes are predictable and bracket spikes are avoided.
Scenario 2 — Spouse using a rollover: The surviving spouse completes a spousal rollover to their own IRA, re-aligns RMD timing with their age, and coordinates QCDs later in retirement based on charitable goals.
Scenario 3 — Trust and special needs planning: A special needs trust is named. The trustee coordinates distribution limits with benefits eligibility and supplements protections via tailored coverage and a funding strategy designed for the 10-year horizon.
Related Topics to Explore
- Retirement income annuities explained
- Rollover IRA vs. annuity comparison
- Life Insurance after a divorce
- Understanding required minimum distributions
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- Since 1980 — independent guidance across insurance, income, and legacy planning
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FAQs: Stretch IRA Ten Year Rule
Who must follow the 10-year rule?
Most non-spouse beneficiaries. Certain eligible designated beneficiaries (EDBs) may use life-expectancy payouts, subject to rules.
Do I have to take annual RMDs during the 10 years?
It depends on whether the original owner died before or after their required beginning date. Many beneficiaries can choose timing; some must take annual RMDs and still finish by Year 10.
How are distributions taxed?
Traditional IRA withdrawals are generally taxable as ordinary income. Roth IRA rules differ; coordinate with a tax professional.
Should I spread withdrawals or wait until later?
Model your bracket today and expected future income. Even pacing avoids spikes; deferral helps if you expect lower income later.
Can a trust be the beneficiary?
Yes, but rules get complex. Structure (conduit vs. accumulation) changes how fast you must distribute and the tax result.
