In Part 1, we explained the SECURE Act’s 10-year rule, which took effect in 2020. Most adult children who inherit a retirement account must now withdraw the entire account within 10 years.
However, not all beneficiaries are treated the same under the law.
This is Part 2 of our two-part SECURE Act series, outlining the key exceptions to the 10-year rule.
The General Rule
As a reminder, most non-spouse beneficiaries must fully distribute an inherited retirement account within 10 years of the original owner’s death.
There are, however, several important exceptions.
Who Is Not Subject to the Standard 10-Year Rule?
Certain beneficiaries, sometimes referred to as “eligible designated beneficiaries,” may use more favorable distribution rules.
• A Surviving Spouse
A surviving spouse has the most flexibility.
A spouse may roll the inherited retirement account into his or her own IRA and treat it as a personal retirement account. Alternatively, the spouse may maintain it as an inherited IRA and take withdrawals over the spouse’s lifetime.
If treated as the spouse’s own IRA, required minimum distributions are based on the surviving spouse’s age. The account does not need to be emptied within 10 years, and the remaining balance may continue to grow tax-deferred.
• A Minor Child of the Account Owner
A minor child of the account owner is also treated differently.
A child under age 21 may take required minimum distributions each year based on life expectancy. Once the child reaches age 21, the 10-year rule applies. At that point, the remaining balance must be distributed within 10 years.
It is important to note that this special rule applies only to a minor child of the account owner. If a child inherits from a grandparent or another relative, the 10-year rule generally applies immediately, regardless of age.
In 2024, IRS guidance clarified that age 21 is used for this rule, even though some states define legal adulthood at age 18.
• A Disabled Individual
A beneficiary who meets the IRS definition of “disabled” may take distributions over his or her life expectancy rather than being subject to the 10-year rule. The IRS definition is strict and limiting. The disability must be severe enough that the individual is unable to engage in multiple activities of daily living such as dressing, showering, toileting and more. Furthermore, the disability is expected to be long-term.
• A Chronically Ill Individual
Similarly, a beneficiary who is chronically ill may use life expectancy distributions instead of the 10-year rule, provided the IRS requirements are met.
• A Beneficiary Close in Age to the Account Owner
A beneficiary who is not more than 10 years younger than the account owner may also qualify for life expectancy distributions. This situation often arises when a sibling or unmarried long-term partner is named as beneficiary.
Overall Impact
Some beneficiaries can still spread withdrawals over their lifetime. However, for most adult children, inherited retirement accounts must be fully distributed within 10 years. For minor children, the ability to use life expectancy distributions is temporary and ends at age 21 and then flips to the 10-year rule..
A Common Planning Mistake
Many families assume that all children qualify for lifetime withdrawals. For most adult children, that is no longer true, even if the original account owner intended for the funds to stretch over decades.
Why Reviewing Your Estate Plan Matters
The SECURE Act did not change how retirement accounts pass at death. That still depends on your beneficiary designations.
What it did change is how quickly those accounts must be distributed.
That affects:
- the timing of taxable income
- potential tax brackets for the beneficiary
- the long-term financial outcome for heirs
Retirement accounts often represent decades of savings. Changes in distribution rules now reduce how much money beneficiaries ultimately keep after paying taxes on their distributions.
If your estate plan was created before 2020, it is important to confirm that it still functions as intended under current law.
A brief review can help ensure your plan continues to reflect both today’s rules and your long-term goals.