To Inform:

If you’ve inherited (or expect to inherit) an IRA, you’ve probably heard that the rules have changed. Thanks to legislation like the SECURE Act that passed in December of 2019, beneficiary IRAs (also called inherited IRAs) now come with a set of guidelines that split beneficiaries into two main camps: eligible and non-eligible. The difference between the two can have a major impact on how and when you must withdraw the money. This applies to IRA’s inherited after January 1, 2020.

First, what is a beneficiary IRA?

A beneficiary IRA is a retirement account you inherit after someone passes away. It is similar to a normal IRA, but you can’t contribute new money to it, and the withdrawal rules are unique.

The big question the IRS asks is: Who inherited the account? That answer determines if you’ll follow the eligible or non-eligible beneficiary rules.

Eligible Designated Beneficiaries (EDBs)

This group of beneficiaries get more flexibility. It includes:

• A surviving spouse
• Minor children of the account owner
• Disabled or chronically ill individuals
• A non-spouse who is not more than 10 years younger than the original owner

This group can still take advantage of what’s often called the “stretch” option, which means they can choose to:

• Withdraw money gradually over their life expectancy, or
• Follow the 10-year rule (described below), if it makes sense for tax planning.

This flexibility can allow the account to keep growing tax-deferred for a longer period.

Non-Eligible (Regular) Designated Beneficiaries

This group includes all other beneficiaries, such as adult children, grandchildren, friends, etc.

The biggest change established with the SECURE Act is that most non-eligible beneficiaries must follow the 10-year rule, which means:

• The entire IRA must be emptied by the end of the 10th year after the original owner’s death

Gone are the days when most beneficiaries could stretch distributions over decades. That strategy was largely eliminated for this group.

Recent IRS guidance has also clarified that in some cases, beneficiaries may need to take annual required minimum distributions (RMDs) during those 10 years, especially if the original account owner had already started taking RMDs.

Why this change matters

From a planning perspective, this shift is huge.

Under the old rules, someone inheriting an IRA could spread withdrawals (and taxes) over their lifetime. Now, many beneficiaries are forced to withdraw everything within 10 years, which can:

• Push them into higher tax brackets
• Accelerate tax bills
• Reduce long-term tax-deferred growth

In short, the IRS is collecting taxes sooner.

A quick note on spouses

Spouses are in a league of their own. They often have the most flexibility, including the ability to:

• Roll the IRA into their own account,
• Delay distributions, or
• Treat the account as an inherited IRA depending on planning strategy.

Because of this, spousal planning can look very different from other types of beneficiaries.

The bottom line

The beneficiary IRA rules really come down to one key question: Do you qualify as an eligible designated beneficiary or not?

• If yes, you may still have the ability to stretch distributions over time.
• If no, you’re likely working within a 10-year window with less flexibility and more urgency around tax planning.

Either way, these rules are nuanced, and small details (like date of death or account type) can change the outcome. That’s why we recommend consulting a financial advisor or tax professional to avoid costly mistakes.

At a high level, the takeaway is simple: inherited IRAs are no longer a “set it and forget it” asset, they require a planning strategy.

The sooner you understand which category you fall into, the better direction you’ll have for planning.

Written by Jonathan Bailey, Client Advisor