Inheriting a parent’s retirement account once came with a quiet tax advantage: an heir could stretch withdrawals over a lifetime, letting the money grow tax-deferred for decades. That strategy, known as the stretch IRA, is largely gone. Under the SECURE Act, most heirs who inherit an IRA must now empty the entire account within 10 years, and the compressed timeline can shove a beneficiary’s income, and tax bill, into a higher bracket during their peak earning years.
What the 10-year rule requires
The rule applies to most non-spouse beneficiaries who inherit a traditional or Roth IRA from an owner who died in 2020 or later. Rather than taking small required distributions spread across an expected lifetime, these heirs must have the account fully distributed by the end of the tenth year following the year of the original owner’s death. The IRS lays out the framework in its guidance on retirement plan beneficiaries. For a traditional IRA, every dollar withdrawn from the inherited account counts as ordinary taxable income to the heir, so the 10-year clock is really a countdown on when a potentially large tax bill comes due.
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Who is exempt as an eligible designated beneficiary
Not every heir is caught by the 10-year window. The law carves out a category called eligible designated beneficiaries who can still stretch distributions over a longer period. That group includes a surviving spouse, a minor child of the account owner, a beneficiary who is disabled or chronically ill, and anyone who is not more than 10 years younger than the deceased owner, such as a sibling close in age. A surviving spouse in particular retains the most flexibility, often able to roll the account into their own IRA. For the adult children who make up the largest share of heirs, however, the 10-year rule is usually the one that applies, and the exemptions do not reach them.
How the timeline pushes heirs into higher brackets
The tax danger comes from bunching. An adult child who inherits a sizable traditional IRA in their fifties, often the stretch of life when career earnings peak, must layer the account’s withdrawals on top of an already substantial salary. Waiting until year 10 and pulling the entire balance at once can spike taxable income into a markedly higher marginal bracket for that single year. Spreading withdrawals evenly across the decade generally softens the blow, but even a measured schedule adds taxable income during years when a beneficiary may least want it. There is a further wrinkle: when the original owner had already reached the age for required minimum distributions, some heirs must also take annual withdrawals in years one through nine and still clear the account by year 10, a point the IRS addresses in its rules for inherited IRA distributions.
The planning moves that blunt the tax hit
Because the rule turns an inheritance into a 10-year tax-management problem, timing the withdrawals becomes the central decision. Heirs who model their income year by year can pull larger amounts in lower-income years, such as after retirement or between jobs, and smaller amounts when earnings are high, keeping more of the balance out of the top brackets. An inherited Roth IRA is subject to the same 10-year emptying requirement but comes out tax-free, which changes the calculus toward letting it grow as long as possible before the deadline. Missing the deadline is costly: a beneficiary who fails to withdraw a required amount faces an excise tax on the shortfall, though the SECURE 2.0 Act lowered that penalty and reduces it further when the error is corrected quickly. The stretch IRA that let inheritances compound for a lifetime is now the exception rather than the rule, and the IRS beneficiary guidance is the starting point for heirs deciding how to drain an account without handing an outsized share to taxes.
This article was researched and drafted with the assistance of AI and reviewed by The Financial Wire editorial team.
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Warren Cohen is a finance writer based in Phoenix, Arizona, covering personal finance topics including credit, banking, and beginner investing. He earned his degree in business administration from Arizona State University and began his career working in consumer finance, where he gained direct experience with lending and credit systems. He now writes for personal finance websites and fintech platforms, focusing on clear, practical content that helps readers make informed financial decisions.
