The SECURE Act and Your Heirs

How new inherited IRA rules are changing legacy planning

It happens far too often: Someone hits all their retirement-savings goals by making sound decisions over many decades, only to be blindsided by penalties or tax consequences due to unexpected rule changes. Or, worse, they didn’t know about the original rules in the first place.

Congress passed two consequential laws in recent years that have impacted the world of retirement accounts. Both the SECURE Act (passed in 2019) and the SECURE Act 2.0 (passed in 2022) shared the goal of incentivizing more Americans to save for retirement and improving existing methods of wealth transfer.

One of the most notable rule changes affects how the government treats IRA inheritance.

What’s inside the SECURE Act?

Congress made changes to a wide array of rules governing employer-sponsored retirement plans, including 401(k)s, 403(b)s, traditional IRAs, and Roth accounts.

Beyond inheritance rules, employers and employees should both be aware of other significant changes from the SECURE Act and SECURE Act 2.0, such as:

• Roth catch-up contributions: Beginning in January 2026, employees age 50 or older who earned at least $150,000 in the prior year must make catch-up contributions on a Roth (after-tax) basis. Employers are responsible for complying with this rule or may face penalties.
• Higher age for Required Minimum Distributions (RMDs): Required Minimum Distributions — the mandatory withdrawals from retirement accounts based on age — used to begin at age 72. Under the SECURE 2.0 Act, the starting age is now 73 and will rise to age 75 beginning in 2033.
• Broadened access to IRAs: Employers must now automatically enroll eligible employees in any newly established 401(k) or 403(b) plan — though individuals can choose to opt out. Also, the legislation expanded retirement benefits to part-time employees. 

While the stated purpose of both pieces of legislation was to help investors prepare for the future and maximize their savings, some details appear to contradict those goals. One of the more controversial outcomes of the Acts has been the so-called “10-year rule” for non-spousal heirs of retirement accounts.

What is the 10-year rule?

With the passage of the SECURE Act, Congress instituted a new “10-year rule” applying to non-spouse beneficiaries who inherited an IRA after January 1, 2020. In a nutshell, the rule requires beneficiaries to deplete their inherited accounts within 10 years of the originator’s passing. As a result of the new rule, these beneficiaries must also withdraw an RMD each of the nine years, with the remainder in the tenth year, or face penalties.

One consequence of the 10-year rule is that it has largely eroded the old stretch IRA strategy, which allowed non-spouse beneficiaries to defer taxes and RMDs over a prolonged period of their lives, thereby maximizing the compound growth of those assets.

Adding to the controversy of the 10-year rule has been the government’s early enforcement. Between 2020 and 2024, even though the rule had taken effect, the IRS waived penalties for anyone who failed to withdraw an RMD. However, enforcement is fully underway today — although certain exemptions still exist.

Who remains eligible?

It’s important to acknowledge that none of the major rules for spouses who inherit an IRA were changed. Generally speaking, spouses have the option of adding the inherited assets to their own account of the same kind (IRA to IRA, Roth to Roth) or creating a new account with those funds in their own name.

As for non-spouses, most people must comply with the 10-year rule, but there are exemptions for “eligible designated beneficiaries” (EDBs). The following categories qualify as EDBs:

• Spouses
• Disabled or chronically ill beneficiaries
• Beneficiaries who are less than 10 years younger than the deceased
• Children of the deceased who are minors (including legally adopted children). However, at age 21, their 10-year clock starts. 

While the lifetime-stretch strategy remains in use among EDBs, what methods exist to reduce taxes and preserve wealth?

What this means for heirs

If your family is not prepared, there can be negative consequences to navigating the new 10-year rule, which often include:

• Forcing heirs to withdraw more money, subject to taxes, over a shorter time frame than anticipated
• Pushing heirs into higher-tax brackets
• Losing the ability to access the compound savings of an account over a lifetime

However, in coordination with your financial advisor and/or estate planner, there are strategies that can help lessen the potential blow. Among them:

• Charitable giving: Leaving a portion of your retirement savings to charities, rather than keeping it all for beneficiaries, is another tax-efficient strategy to consider. For example, people age 70.5 or older can use Qualified Charitable Distributions (QCDs) during their lifetime, which sends their RMD directly — and tax-free — to an eligible charity.
• Trusts: If you’re concerned about how a beneficiary might use inherited funds, especially with the accelerated timetable imposed by the 10-year rule, a trust may provide greater control over the distribution of assets. However, trusts are subject to complex tax and distribution rules, so this approach requires careful drafting and professional guidance.
• Roth conversions: If your heirs are likely to inherit sizable RMDs — and potentially face large taxable distributions — converting some assets to a Roth IRA during your lifetime could make sense. You’d pay the taxes now, but future qualified withdrawals for beneficiaries would generally be tax-free. The right move depends on your tax bracket, estate goals, and timeline.
• Regular reviews: Don’t let any rules catch you by surprise by keeping your beneficiary details up to date. Births, deaths, marriages, and divorces should all trigger a review. It’s also important to understand whether a beneficiary qualifies as an EDB.

Retirement account rules don’t exist in a vacuum. You should strive to review your strategy with your financial professional and estate attorney to ensure your will, trust, and beneficiary designations all work together.

How IMA Private Wealth helps

IMA Private Wealth helps simplify your long-term planning needs by serving as a partner that sees the big picture and provides a suite of holistic financial services. Through ongoing reviews and disciplined adjustments, we can help you plan for your future with clarity and confidence. Now is not the time to wait.

Schedule an estate review conversation before the 2026 planning windows close by reaching out to us today.

Make sure you download our most recent checklist, “Avoiding Costly Errors of The SECURE Act.”