Your father died in March 2026, leaving you his $800,000 Traditional IRA. You're 48, earning $180,000. Before SECURE Act 2.0, you could have stretched distributions across your remaining life expectancy — maybe 35 years — letting the account grow mostly tax-deferred. After the rule change, you have exactly 10 years to drain it. All $800,000+ has to come out by the end of year 10, and everything you pull is taxed as ordinary income in the year you pull it.
Done wrong, a $400,000 lump-sum withdrawal in year 10 because you procrastinated combined with your $180K salary pushes you into the 37% federal bracket. On that single withdrawal: $148,000 in federal tax, plus state, plus loss of deductions and credits phased out at that income level. Total tax bill could exceed $175,000 on a single year's distribution from an account that was meant to be a gift.
Done right, the same $800,000 gets distributed across 10 years at average tax rates in the 24-28% range. Total tax: more like $220,000 over the decade. The difference between the two strategies is roughly $100,000 in your pocket vs. the IRS's.
The Rule That Changed Everything
SECURE Act 1.0 (2019) eliminated the "stretch IRA" for most non-spouse beneficiaries. Inherited Traditional and Roth IRAs must now be fully distributed within 10 years of the original owner's death. No annual required distributions during years 1-9 (mostly — see complications below), just a hard deadline at year 10.
SECURE Act 2.0 (2022) clarified and added nuance: if the original owner died after their Required Beginning Date for RMDs (typically age 73), the beneficiary must take annual RMDs during years 1-9 AND fully distribute by year 10. If the owner died before their RBD, the beneficiary has flexibility during years 1-9 but must still drain by year 10.
For most recent deaths (owners who hadn't yet started RMDs), the rule is: no mandatory annual distributions for nine years, full distribution required by December 31 of the tenth year after death.
Who's Exempt (Eligible Designated Beneficiaries)
Five categories of beneficiaries can still stretch distributions:
- Surviving spouses (can treat as their own IRA)
- Disabled beneficiaries (per IRS definition)
- Chronically ill beneficiaries
- Beneficiaries less than 10 years younger than the deceased
- Minor children of the deceased (until majority, then 10-year rule kicks in)
If you don't fit one of these categories, you're subject to the 10-year rule.
The Distribution Strategy
The default bad strategy: let the account grow for 9 years, then withdraw all $800K+ in year 10.
The default good strategy: take equal distributions of roughly $80K per year for 10 years, smoothing the income recognition.
The optimal strategy: customize based on your income volatility, bracket projections, and other flexibility.
For most earners, the good strategy is close to optimal. Let me show the math.
The Math Example
Beneficiary: 48 years old, $180K salary, plans to retire at 62. Inherits $800K Traditional IRA in March 2026.
Scenario A (wait and lump sum):
- Years 1-9: account grows at 6%, reaches $1.35M
- Year 10 (age 58): withdraw $1.35M, combined with $200K salary = $1.55M income
- Federal tax: ~$520K (effective rate 33% on the withdrawal)
- State tax (assume 6%): ~$80K
- Total tax: $600K
Scenario B (equal distributions):
- Years 1-10: withdraw $80K per year (adjusting for growth)
- Each year: $260K total income, roughly 22-24% marginal on the $80K withdrawal
- Federal tax on withdrawals alone: $80K × 24% × 10 = $192K
- State: $48K
- Total tax: $240K
Scenario C (retirement-timed):
- Years 1-4 (while working): withdraw $50K per year, at 24% = $48K tax
- Year 5 (age 53): still working, $50K at 24% = $12K tax
- Years 6-10 (age 54-58, approaching retirement): withdraw remaining ~$900K over 5 years
- At age 62 retirement, use savings to reduce income needs, stay in 22-24% bracket during years 6-10
- Total tax: roughly $180K-$210K
The optimal strategy depends on the specific situation, but Scenario A costs $360K+ more than Scenario B or C. It's almost never correct to wait for the lump sum.
Inherited Roth IRAs
The 10-year rule also applies to inherited Roth IRAs. But withdrawals from Roth IRAs are tax-free (assuming the account has been open at least 5 years). So the consequences of the 10-year rule are much less severe.
Still, most beneficiaries should delay Roth withdrawals as long as possible within the 10-year window — tax-free growth is valuable. Optimal strategy for inherited Roth: let it grow, take everything out in year 10 as a single tax-free distribution, then invest it externally.
Coordinating with Your Own Contributions
Inherited IRA distributions increase your taxable income in the year of withdrawal. This can phase you out of:
- Direct Roth IRA contributions (if near the $165K/$246K phase-outs)
- Certain deductions (student loan interest, rental real estate losses)
- Certain tax credits
- Lower Medicare premiums (IRMAA) for those 63+
Consider the interaction effects. A $90K distribution that triggers a $3K IRMAA surcharge costs you more than the marginal tax rate alone suggests.
The 2024 Relief (Doesn't Apply Going Forward)
The IRS provided relief for 2024-2025 allowing beneficiaries to skip RMDs that were technically required during the 10-year window. This was because the rules were unclear after SECURE 2.0. Starting in 2026, the RMDs during years 1-9 are fully enforced for beneficiaries of deceased owners who had begun taking RMDs.
If you inherited before 2024 and didn't take RMDs during years 1-2 of the 10-year window, you're probably fine. If you inherited in 2026, plan for mandatory annual distributions.
State Tax Considerations
Some states tax inherited IRA distributions. Others partially exempt them. Four states have inheritance taxes on IRAs at the state level (Iowa, Kentucky, Maryland, Nebraska, Pennsylvania).
Before making distribution decisions, understand your state's treatment. Moving to a no-income-tax state in year 5 could shift $400K+ of remaining distributions from taxable-in-California to zero state tax — savings of $38K.
The Coordination with Your Own Retirement
If you're nearing retirement, consider that inherited IRA distributions are earned income in the year taken. Distributing more during low-income years (early retirement, pre-Social Security) uses up the 10-year window during your cheapest tax years.
Beneficiary age 55 inheriting, planning retirement at 58: take distributions during years 1-2 while working (higher rate), then heavy distributions during years 3-10 while retired (lower rate). This is often the best sequence for early retirees.
What to Tell Your Executor
If you're the original IRA owner, your beneficiary will thank you for several decisions:
- Consider Roth conversions during your lifetime — shifts the tax burden from their high-earning years to your lower-income retirement
- Name beneficiaries correctly at the custodian — avoid probate, which can force bad timing
- Provide instructions in your estate planning about optimal distribution strategy
- Consider whether your beneficiaries might qualify as disabled or chronically ill (stretch-eligible) — explore qualifying them formally
The 10-year rule is onerous. Good planning during your lifetime can reduce the tax consequences for your heirs by hundreds of thousands of dollars. Bad planning (or no planning) transfers wealth to the IRS instead of your family.