Dan was 52 when his mother died in the spring of 2022. She left him a $450,000 traditional IRA, and his first instinct was reasonable. His grandmother's IRA had passed to his uncle years earlier, and the uncle took small withdrawals for decades, letting the rest grow. Dan figured he'd do the same.

His accountant set him straight in about two minutes. That playbook had been retired. Dan's inherited IRA had to be empty by December 31, 2032, and the tax bill would land during what were likely his highest-earning years.

That's the stretch IRA's end, and it has caught a lot of families off guard.

What the stretch used to do

Before 2020, a non-spouse beneficiary who inherited an IRA or a TSP balance could generally spread required withdrawals over their own life expectancy. A 45-year-old inheriting $600,000 might have been required to take out only about $14,000 to $15,000 in the first year. The rest stayed invested, growing tax-deferred, sometimes for four decades.

This made the IRA a multigenerational vehicle. A parent could leave a large balance to a child, and the child could leave whatever remained to a grandchild. Estate planners built whole strategies around it. Congress eventually noticed what that meant for tax revenue.

The SECURE Act changes the deal

The Setting Every Community Up for Retirement Enhancement (SECURE) Act became law in December 2019 and took effect January 1, 2020. Most of its headlines were about expanding retirement access. The inherited account provision was the revenue offset, and it was a big one.

For owners who die after December 31, 2019, most non-spouse beneficiaries must now empty the account by the end of the tenth year following the year of death. Someone who dies in October 2025 leaves a beneficiary with a deadline of December 31, 2035. That's effectively ten years and change.

Inherited accounts from owners who died in 2019 or earlier are grandfathered under the old rules. Those beneficiaries can still stretch.

Who still gets to stretch

The law didn't eliminate the stretch for everyone. It created a category called eligible designated beneficiaries, who can still use life expectancy payouts:

  • A surviving spouse
  • The owner's minor child (until reaching the age of majority, at which point the 10-year clock starts)
  • A disabled or chronically ill beneficiary, as defined by the tax code
  • Anyone not more than 10 years younger than the deceased owner

Everyone else, including adult children, grandchildren, nieces, nephews and friends, falls under the 10-year rule. For most families, that means adult kids.

The wrinkle that tripped up a lot of people

For years, the law's text left a question hanging. Does the 10-year rule mean you can wait until year ten and take everything at once? Or do you need annual withdrawals along the way?

The IRS answered in final regulations released in 2024, and the answer depends on the owner's timing.

If the owner died before their required beginning date (the point when they had to start taking required minimum distributions, or RMDs), the beneficiary has no annual requirement. They just need a zero balance by the end of year ten.

If the owner died on or after that date, the beneficiary must take annual RMDs in years one through nine, then empty whatever remains in year ten. Dan's situation fits this second category, because his mother was already taking RMDs.

The IRS waived penalties for missed annual distributions for several years while it sorted this out, and the requirement started applying in earnest in 2025. If you inherited an account and haven't taken an RMD, talk to a tax professional promptly. Check irs.gov for the current guidance and any relief that applies to your year of inheritance.

Inherited Roth IRAs are simpler. The 10-year rule applies, but because the original owner never had a required beginning date, there are no annual withdrawals. Distributions are generally tax-free if the account met the five-year rule.

What it costs in real dollars

Say Maria, 48, inherits a $600,000 traditional IRA from a parent who died before RMDs began. She earns $180,000 a year as a single filer.

Under the old rules, she'd have been required to take roughly $14,000 in year one, adding modestly to her taxable income.

Under the 10-year rule, she needs to withdraw $600,000 plus growth within a decade. Spread evenly, that's $60,000 a year or more added on top of her salary. Depending on the year's brackets, that could push a meaningful chunk of it into a higher marginal rate. If she waits until year ten and takes it all at once, she could face a bracket far higher than any she's seen. The brackets and thresholds change yearly, so check irs.gov for current figures.

The money is the same. The tax bite is larger because of compression.

Where TSP participants fit in

Federal employees and military members face one extra layer. A surviving spouse can generally keep the money in a TSP beneficiary account or roll it elsewhere. Non-spouse beneficiaries can't keep an account in the TSP. They can take a payment or transfer the balance into an inherited IRA, and the 10-year rule then governs that IRA. Details on current options and forms are at tsp.gov.

It's worth checking your TSP beneficiary designation, too. Many people haven't looked at theirs in a decade. An ex-spouse or a deceased parent listed there can create real headaches.

How families are adapting

There's no magic fix, but there are sensible responses.

Spread withdrawals deliberately. Taking equal amounts across ten years often beats a lump sum. Even better is front-loading in low-income years, such as a gap between jobs or after retirement.

Consider Roth conversions during life. An owner who converts some of their traditional balance, paying the tax at their own rate, can leave heirs money that comes out tax-free. This works best when the owner's bracket is lower than the beneficiaries'.

Revisit the beneficiary plan. Naming a spouse as primary preserves flexibility. Leaving traditional IRA money to a charity, while leaving other assets to heirs, can also be efficient, since charities don't pay income tax on it.

Review trusts. Many trusts written before 2020 assumed the stretch. Some now produce awkward results, including compressed trust tax brackets. An estate attorney should look at them.

The bottom line

The stretch IRA was never a promise, just a feature of the rules. Congress changed the rules, and for most heirs, ten years is the new clock.

If you're an account owner, the planning window is now. If you're a beneficiary, learn your deadline and your annual requirement before the first year closes. Dan eventually built a plan: modest withdrawals early, larger ones after a planned reduction in his work hours. It cost him less than the lump-sum scenario would have. But he started two years later than he should have, and that was the expensive part.