If you’ve inherited an IRA in recent years, you should be aware that the SECURE Act, passed in 2019, changed how many beneficiaries need to handle this inheritance. What used to be a generous benefit that could last decades now comes with a strict deadline that can become a tax headache without proper planning. If you inherited an IRA prior to 2020, you’re still covered under the old rules. But for those who inherited an IRA after 2020, here’s what you need to know.

The 10-Year Rule Explained

If you inherit an IRA from someone other than your spouse, you’ll likely face the 10-year rule.

In the past, most non-spouse beneficiaries could spread withdrawals over their lifetime, allowing the account to grow longer. This was called a “stretch IRA.” The SECURE Act largely eliminated that option for most heirs, now requiring them to withdraw all assets within the account by the end of the 10th year following the original owner’s death.

There’s no penalty for waiting until year 10 to withdraw everything at once, but that strategy often backfires. It could push you into a higher tax bracket and create a tax nightmare. Instead, spread withdrawals across the 10 years to manage your tax burden. It’s a smart idea to work with a tax professional who can help you figure out the timing that makes sense for your situation.

Who is Exempt from the 10-Year Rule?

The SECURE Act carved out exceptions for certain beneficiaries, called “eligible designated beneficiaries.” These beneficiaries are still allowed to take distributions over their life expectancy. They include:

• A surviving spouse
• A minor child of the original account owner (until adulthood)
• A disabled beneficiary
• A chronically ill beneficiary
• A beneficiary who is no more than 10 years younger than the deceased

Among these beneficiaries, a surviving spouse has the most freedom with the account. They can roll the inherited IRA into their existing IRA or take distributions based on life expectancy. This gives them more control over the timing and tax impact.

Minor children can stretch withdrawals only until age 21, at which point the 10-year clock begins.

Tax Implications

The change in the SECURE Act was designed to generate more tax revenue faster, but it created planning challenges for many beneficiaries.

For instance, with a traditional IRA, you pay taxes on withdrawals. If you’re still in the workforce and you’re forced to add IRA withdrawals on top of your income, you could end up getting pushed into a higher tax bracket.

Smart Ways to Handle an Inherited IRA

If you’re subject to the 10-year rule, consider spreading withdrawals evenly across multiple years. This can help manage your tax bracket.

Additional smart moves to think about include taking larger withdrawals in years when income is lower, coordinating withdrawals with retirement or a career change, and working with a tax professional who can advise you on the best path forward.

The 10-year rule means less flexibility and a greater risk of higher taxes, so planning and timing are everything. The deadline might be a decade away, but the tax implications begin the moment you inherit an IRA.