Understanding the SECURE Act and what it means for your beneficiaries

The SECURE Act of 2019 significantly changed how inherited IRAs must be distributed, particularly for non-spouse beneficiaries. While the IRS did not finalize regulations until 2024, these updates now provide long-awaited clarity around required minimum distributions (RMDs) and the 10-year rule.

To ease the transition during the period of uncertainty, penalties for missed RMDs between 2020 and 2024 were waived. However, with final rules now in place, beneficiaries must fully understand how distributions are required going forward.

Inherited IRAs Left to Individuals

Under the current rules, IRA beneficiaries fall into two primary categories:

• Eligible Designated Beneficiaries (EDBs) – including spouses, minor children of the account owner, individuals less than 10 years younger than the owner, and those who are disabled or chronically ill
• Designated Beneficiaries (DBs) – all other individuals, such as adult children, grandchildren, nieces, nephews, and friends

The 10-Year Rule

Most non-spouse beneficiaries (DBs) must withdraw the full IRA balance by the end of the 10th year following the year of the original owner’s death. This applies to both traditional and Roth IRAs.

If the original owner had already begun taking RMDs, beneficiaries may also be required to take annual distributions during years 1–9, in addition to fully distributing the account by year 10.

If RMDs had not yet started, beneficiaries generally have more flexibility and may wait until the end of the 10-year window to distribute the full account.

Important Exceptions for EDBs

Eligible Designated Beneficiaries have more flexible options:

• Spouses may roll the inherited IRA into their own account and take distributions based on their own life expectancy
• Minor children may stretch distributions until age 21, after which the 10-year rule applies (up to age 31 in total planning timeline)
• Certain individuals with disabilities or chronic illness may also qualify for life expectancy-based distributions

Penalties and Recent Clarifications

Failing to take required distributions can result in a penalty of 25% of the missed amount, which may be reduced to 10% if corrected promptly.

Final IRS guidance also clarified that beneficiaries who inherited IRAs between 2020 and 2024 (from owners already taking RMDs) do not need to make up missed distributions. However, they must begin RMDs in 2025 and still comply with the full 10-year distribution rule.

For Roth IRAs, no lifetime RMDs are required—but the account must still be fully distributed by the end of the 10th year.

Inherited IRAs Left to a Trust

Many investors choose to name a trust as the beneficiary of their IRA for added control and protection. However, trust-based planning introduces additional complexity under the new rules.

When properly structured, a trust can allow individual beneficiaries within the trust (“sub-trusts”) to be treated as designated beneficiaries for distribution purposes. In some cases, this previously allowed distributions to be stretched over a beneficiary’s life expectancy.

Under the updated SECURE Act regulations, however, most trust beneficiaries are now also subject to the 10-year rule, rather than extended life expectancy payouts.

Because of these changes, trust design and beneficiary designation language must be carefully reviewed. Even small drafting differences can significantly impact tax treatment and distribution timing.

Estate planning professionals increasingly recommend reviewing beneficiary designations and trust structures to ensure they align with current rules and intended outcomes.

If your IRA is currently left to a trust and your documents have not been reviewed since 2019, it is especially important to revisit your planning with an experienced attorney.

Final Thoughts

Inherited IRA rules have become significantly more complex in recent years, especially for non-spouse beneficiaries and trust structures. While the SECURE Act provides clearer guidelines, it also limits flexibility in many situations.

If your estate plan includes an IRA—or if you expect to inherit one—it is important to ensure your strategy is up to date and aligned with current regulations. Working with a qualified estate planning attorney or tax professional can help ensure your wishes are carried out efficiently and tax-effectively.