Opportunities and Challenges When You Inherit an IRA
New SECURE 2.0 Act rules have kicked in to reshape distribution and taxes for inherited IRAs and retirement plans. Read on for strategies to help beneficiaries.

Inheriting an IRA or retirement plan can present both financial opportunities and challenges, especially with the recent changes introduced by the SECURE 2.0 Act. This legislation, which was signed into law in 2022, significantly reshapes how inherited retirement accounts are managed, with new distribution rules, tax implications and planning strategies to consider. Understanding these changes is crucial for beneficiaries looking to manage an inheritance effectively and make informed decisions about their financial future.
The SECURE 2.0 Act and inherited IRAs: What’s new?
The SECURE 2.0 Act brought substantial changes to the rules governing inherited retirement accounts, especially for non-spouse beneficiaries. The primary shift revolves around the elimination of the "stretch IRA" strategy. Previously, non-spouse beneficiaries could stretch required minimum distributions (RMDs) over their own lifetimes, allowing them to spread out withdrawals and tax obligations over many years.
Under the new regulations, most non-spouse beneficiaries must now withdraw the full balance of an inherited IRA within 10 years of the original account holder’s death. Known as the "10-year rule," this change compresses the distribution period, which can have notable tax consequences, particularly if the beneficiary is already in a high-income bracket.

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There are exceptions to this rule, particularly for eligible designated beneficiaries (EDBs), who include surviving spouses, minor children of the original account holder (until they reach the age of majority), disabled or chronically ill individuals and beneficiaries who are not more than 10 years younger than the original account holder. These EDBs are still allowed to stretch RMDs over their lifetimes. Individuals who do not qualify as an EDB must adhere to the 10-year rule and are considered non-eligible designated beneficiaries (NEDBs).
Navigating tax implications of inherited IRAs
For beneficiaries, understanding the tax implications of inherited IRAs is essential. Traditional IRAs and Roth IRAs, in particular, come with different tax obligations and planning opportunities.
Traditional IRAs. Distributions from inherited traditional IRAs are treated as taxable income. For NEDBs who must fully deplete the account within 10 years, withdrawing large amounts over a short period can lead to substantial tax liabilities. This accelerated distribution requirement may push beneficiaries into higher tax brackets, resulting in a larger tax burden. Careful planning around the timing and amount of withdrawals is therefore critical to minimize tax impact.
Roth IRAs. For beneficiaries inheriting a Roth IRA, the tax situation is different. While the 10-year rule still applies for NEDBs, withdrawals from a Roth IRA are generally tax-free, provided the account has met the five-year holding requirement. This feature allows beneficiaries greater flexibility in managing distributions without triggering income tax, which can be particularly advantageous if they wish to delay distributions until the end of the 10-year period (to allow for continued tax-free growth). However, it’s important to remember that while the distributions are tax-free, the account must still be fully depleted within the designated 10-year period.
For both traditional and Roth IRAs, NEDBs have flexibility in choosing when to take distributions within the 10-year window. Some may prefer to spread withdrawals out evenly over the decade, while others might choose to delay or accelerate distributions if they anticipate lower taxable income or a need for the funds.
EDBs vs NEDBs: Key considerations
The options available to EDBs inheriting IRAs differ significantly from those available to NEDBs, offering some additional flexibility.
Spouses/EDBs have three primary options when inheriting an IRA:
- Treat the IRA as their own (spouses only). This option allows a surviving spouse to treat the inherited IRA as if it were their own, effectively merging it with their own IRA. This strategy provides the greatest flexibility, particularly if the spouse is under 59½ and intends to delay RMDs until they reach the applicable age.
- Open an inherited IRA and utilize the stretch provision. By keeping the account as an inherited IRA, an EDB can avoid early withdrawal penalties if they are under 59½. This approach allows the EDB to stretch distributions based on their own life expectancy.
- Withdraw the funds in a lump sum. While this option is less common due to its immediate tax consequences, an EDB can choose to withdraw the full balance in one year. This may be appropriate if the account balance is relatively low or if other circumstances justify a complete withdrawal.
NEDBs, by contrast, do not have the option to treat the account as their own, nor can they utilize the stretch provision. Instead, they must adhere to the 10-year rule. Given the 10-year distribution requirement, NEDBs often need to consider tax implications more carefully, especially when managing inherited traditional IRAs. For those inheriting Roth IRAs, it can be advantageous to let the account grow tax-free for as long as possible within the 10-year timeframe.
Strategic planning for inherited IRAs and retirement accounts
The SECURE 2.0 Act changes mean that strategic planning around inherited IRAs is more important than ever. Here are a few strategies that beneficiaries might consider when deciding how to handle inherited retirement accounts:
Consider your income tax bracket. With traditional IRAs, beneficiaries may want to evenly spread withdrawals over the 10-year period if they’re in a higher tax bracket or concentrate withdrawals in years when their income is lower to minimize tax impact.
Maximize tax-free growth in Roth IRAs. If inheriting a Roth IRA, beneficiaries could delay distributions until the end of the 10-year period to maximize tax-free growth, especially if they don’t need immediate access to the funds.
Coordinate with existing retirement accounts. For beneficiaries who already have retirement accounts, integrating an inherited IRA into their overall retirement plan may allow them to balance withdrawals across accounts, optimizing tax efficiency and potentially reducing the tax burden over time.
Evaluate state tax implications. Some states have different tax treatments for inherited IRAs. Beneficiaries should be aware of state-specific rules, as they may affect the timing or tax rate of distributions.
Understand RMD rules for both EDBs and NEDBs. Beneficiaries who must take RMDs need to ensure they are following IRS guidelines and tracking changes that might affect their status.
Inheriting an IRA or retirement plan under the SECURE 2.0 Act comes with new rules and considerations, but with careful planning, beneficiaries can make choices that honor their loved one’s legacy while considering their own financial future. By understanding the distribution requirements, tax implications and available strategies, beneficiaries can better navigate these complexities and make informed decisions that align with their financial goals.
Elizabeth Pappas, CPA, is a Wealth Advisor at Linscomb Wealth in Houston. Elizabeth’s mission is to empower clients to achieve their financial goals and build lasting wealth. With a personalized approach, she works closely with individuals and families to understand their unique circumstances, values and aspirations. Whether it’s planning for retirement, managing investments or preparing for life’s unexpected events, Elizabeth provides clear, tailored advice that aligns with her clients’ goals.
Luke Wuthrich is a Senior Wealth Associate at Linscomb Wealth, where he has been since July 2022. Currently a candidate for CFP® certification and a CFA Level 1 candidate, he is committed to expanding his expertise in wealth management and portfolio management. With a Bachelor of Science in Business from the prestigious Kelley School of Business, with concentrations in Accounting and Finance, Luke is excited to apply his knowledge and skills to positively impact the lives of others.
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Elizabeth Pappas, CPA, is a Wealth Advisor at Linscomb Wealth in Houston. Elizabeth’s mission is to empower clients to achieve their financial goals and build lasting wealth. With a personalized approach, she works closely with individuals and families to understand their unique circumstances, values and aspirations. Whether it’s planning for retirement, managing investments or preparing for life’s unexpected events, Elizabeth provides clear, tailored advice that aligns with her clients’ goals.
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