The SECURE Act of 2019 eliminated the “stretch IRA” for most non-spouse beneficiaries, replacing it with a 10-year distribution rule. This means inherited IRAs and 401(k)s must generally be fully distributed within 10 years of the original owner’s death, potentially pushing beneficiaries into higher tax brackets. Spouses, minor children, disabled beneficiaries, and those less than 10 years younger are exempt. This change makes it more important than ever to coordinate your retirement account beneficiary designations with your overall estate plan.
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The 10-year rule replacing the stretch IRA is the part that catches most people off guard, especially the idea that a lump distribution can push you into a higher bracket. One practical step: before deciding when to take withdrawals, estimate each year’s taxable income and see how much room remains in your current bracket, then spread distributions to fill lower brackets first. Also check whether the original owner had already started required distributions, since that affects the annual amounts you must take.