The IRS has officially ended the possibility of extending (“stretching”) the distribution of inherited IRAs for most non-eligible beneficiaries. Under the new rules, beneficiaries who inherited IRAs in 2020 or later must transfer all assets from the account into their income within 10 years. This change, mandated by the 2019 Secure Act, aims to raise tax revenue and is now fully in effect without further delays. Beneficiaries who haven’t yet begun taking required minimum distributions (RMDs) must start by 2025.
While some financial advisors had hoped for leniency or changes, the IRS has made it clear that beneficiaries must comply with the 10-year rule. Many advisors have already been helping clients spread distributions evenly to minimize the tax burden. Exceptions to the rule exist for certain beneficiaries, such as spouses, chronically ill or disabled heirs, and those 20 years old or younger, who can stretch their distributions until age 21 before triggering the 10-year rule.
Despite the end of the stretch IRA strategy for most, tax-saving options such as converting traditional IRAs to Roth IRAs or utilizing charitable donations may help beneficiaries reduce the tax impact. However, experts agree that the new rules have made retirement planning complicated, making it critical for both advisors and clients to stay informed and adjust their strategies accordingly.
IRS signals that IRA heirs should start RMDs | Accounting Today
