Need That Money

Navigating the Changes to Inherited IRAs under SECURE Act

Inherited IRAs and Their Changes

For many people today, retirement savings have never been more important. With the world of retirement savings changing rapidly, especially in the light of new developments from the SECURE Act of 2019, there are many questions being raised about how the landscape of inherited IRAs will change.

Here we will explore some of the most significant changes that will affect inherited IRAs and provide an overview of how to navigate the new regulations.

SECURE Act and Its Impact on IRA Contributions

One of the main changes that come with the SECURE Act is with respect to IRA contributions. Until this act’s passing, people over the age of 70 1/2 were prohibited from making traditional IRA contributions.

These changes have been lifted, as from January 1st, 2020, any individual with an earned income can contribute to a traditional IRA. However, there are several changes to the rules about inherited IRAs that will impact savers significantly.

Disposal of Stretch IRAs

The SECURE Act also does away with the “stretch” IRA. Previously, a beneficiary could stretch required minimum distributions (RMDs) over their lifetime, extending the account’s tax-deferred status.

However, with the new regulations, except for specific exemptions, new beneficiaries will have to withdraw the funds from the account within ten years, affecting the ability to stretch the IRA account over an individual’s life or kids who inherited IRAs from parents.

IRS Rules for Traditional Inheritance

In addition to these new rules, there remain IRS regulations regarding traditional IRAs, which have not changed. These regulations remain complex, posing significant challenges when it comes to inheritance.

One of the primary challenges for traditional IRA inheritance is that heirs are obligated to take annual distribution payments, based on a specific formula. Failure to take the specified annual RMD for a traditional IRA can result in a penalty of up to 50% of the required distribution.

The Treasury Department recently released new RMD tables for the year 2022, containing different life expectancy periods for those who inherit an IRA account within the next year.

Exemptions for Certain Heirs

There are specific exemptions for some beneficiaries. These include beneficiaries that may be disabled or chronically ill, which will be allowed to stretch the RMDs over their lifetime, similar to the old stretch IRA.

On the other hand, surviving spouses and children under the age of 18 can also adopt this method. Additionally, beneficiaries who are only up to 10 years younger than the account owner will be allowed to draw RMD amounts based on their life expectancy.

The IRA account owner’s surviving spouse can also inherit the account as his or her own, maintaining the tax-deferred status for as long as they like, until they reach age 72 or pass away.

Shifting Towards Tax-Deferred IRA Accounts Over Traditional Pension Plans

With the SECURE Act becoming law, it has motivated people to start prioritizing tax-deferred IRA accounts over traditional pension plans. IRAs offer more flexibility than traditional pension plans, meaning investors can have more control over their retirement savings.

Reassessing Investment Plans and Choice of Beneficiary

As the new laws go into effect, investors who have inherited IRAs, or are considering naming beneficiaries to their IRA accounts, may want to revisit their investment strategies to adjust to these changes. Savers can also look out for opportunities to continue building their retirement nest egg by pursuing tax-advantage options like Roth IRAs, which are not subject to RMDs.


The topic of inherited IRAs and the changes to the rules can be challenging to navigate. However, these changes, combined with the flexibility of plans such as tax-deferred IRA accounts, provide new opportunities for savers to maximize yields on their investments and to shift their investment strategies as needed.

It also presents an opportunity for savers to re-assess their investment plans and choice of beneficiaries. With a clear understanding of these new regulations, investors can make more informed investment decisions that reflect their future objectives.

Confusion and Misinterpretation of Inherited IRA Rules

The passing of the SECURE Act in 2019 changed the way that inherited IRAs work in the United States. While these changes are intended to simplify these accounts, there is still confusion and misunderstanding of the regulations.

In some cases, there is a lack of awareness about the new rules that apply to inherited IRAs, leading to beneficiaries not distributions for their accounts correctly, thereby attracting penalties. Here, we will discuss some of the most common issues and concerns relating to inherited IRA rules.

Hope for Clarification from the IRS

One of the key issues surrounding inherited IRAs is the need for clarity and guidelines from the IRS about how to comply with the new rules. Unfortunately, some of the new rules are vague and open to interpretation, leading to confusion for financial professionals and beneficiaries.

For example, while everyone knows that the new ten-year rule now applies to almost all beneficiaries, there are no specific details regarding the way in which beneficiaries can make withdrawals from the inherited account. We hope that the IRS will give more guidance soon, which will help to clarify how to navigate these new regulations correctly.

Established RMD Rule for Years 1-9

One of the significant changes that the SECURE Act introduced is the imposition of a ten-year rule on inherited IRA accounts. The ten-year rule requires that all funds in an inherited IRA account are distributed to the beneficiary within ten years from the year of the account owner’s death.

While there are some beneficiaries who are exempted from this rule, like spouses, no beneficiaries can stretch withdrawals from inherited IRA for more than ten years. Therefore, if you inherited an IRA from a relative or someone close, you need to keep in mind that you have to withdraw your funds within ten years.

And in some cases, you might need to distribute these funds earlier if beneficiaries are younger.

Lack of Awareness about Full IRA Balance Withdrawal after 10 Years

Another significant issue with the new ten-year rule is that there is still a meaningful lack of understanding about how these accounts work. One of the most significant challenges is the idea of a full IRA balance withdrawal after the ten-year mark.

While beneficiaries know that they must make distributions, some have concerns about the requirement for full withdrawal that the IRA can no longer be stretched over an individual’s lifetime. This need for a full balance withdrawal can cause some concern, particularly for those who may have other retirement savings accounts.

However, we urge you to consult your financial advisors to develop the best plan of action to manage your inherited IRA distribution so that you can best take advantage of the tax-deferred nature of the account.

Complaints and Lobbying by Industry Groups

Finally, we must acknowledge the concerns of financial advisors and industry groups regarding the new regulations around inherited IRAs. Many experts in the field say that such regulations and new laws governing inherited IRAs may make it challenging for some to plan effectively for their retirements. Also, they argue that the rules may unfairly force beneficiaries to take out large distributions, resulting in larger tax bills, and sales to cover the withdrawals.

To express their concern, some industry groups have expressed their objections to these changes through lobbying efforts, thereby calling for the changes to be repealed or reconsidered.


While the new rules governing inherited IRAs have brought some much-needed changes, there are concerns and challenges still to be addressed. As people strive to plan better for their futures, it’s essential to navigate the regulations governing this type of account correctly.

Whether it’s hoping for clarification from the IRS or dealing with a lack of awareness about a full IRA balance withdrawal after ten years, it is essential to understand the rules that govern these accounts. Through careful planning, consultation with knowledgeable professionals, and proactive approaches to managing these accounts, beneficiaries can take full advantage of the benefits that inherited IRAs offer.

Inherited IRAs can offer substantial benefits as part of a retirement savings strategy. However, understanding the new regulations that come with the SECURE Act is critical to taking full advantage of these accounts.

These regulations include the changes to IRA contributions, the disposal of stretch IRAs, exemptions for certain heirs, complex IRS rules for traditional IRAs inheritance, and the obligation to take annual distribution payments. There is still confusion about how these new regulations work, but seeking help from financial professionals and remaining aware of the rules can ensure that you are prepared to take advantage of all the benefits that inherited IRAs offer.

Popular Posts