How New Laws Changed Inheriting Retirement Accounts Forever

Editor’s Note: This article has been reviewed and revised as of August 2025 for accuracy and clarity.

For many families, retirement accounts like IRAs and 401(k)s are their largest single asset. How these accounts are passed to the next generation is a critical part of any comprehensive estate plan. However, major laws passed in recent years, including the SECURE Act and SECURE 2.0 Act, have completely changed the rules for inheriting these accounts.

What used to be a straightforward planning strategy now requires careful consideration to avoid a massive tax bill for your beneficiaries.

The End of the “Stretch IRA”

For decades, the “stretch IRA” was a popular estate planning strategy. It allowed a non-spouse beneficiary (like a child or grandchild) to “stretch” distributions from an inherited IRA over their own lifetime, maximizing the account’s tax-deferred growth. The SECURE Act effectively eliminated this strategy for most beneficiaries.

Now, most non-spouse beneficiaries are subject to a **10-year rule**. This means they must withdraw the entire balance of the inherited retirement account within 10 years of the original owner’s death. This can force beneficiaries to take large distributions during their peak earning years, potentially pushing them into a higher tax bracket and significantly reducing the net value of their inheritance.

How This Impacts Your Estate Plan

This change has profound implications, especially for those who have named a trust as the beneficiary of their IRA. Many older trusts were designed as “conduit” trusts, which were perfect for the old “stretch IRA” rules. Under the new 10-year rule, these same trusts can create a tax disaster, potentially forcing the entire IRA balance to be paid out (and taxed) in the 10th year.

It is now more important than ever to ensure your estate plan is designed to handle these new rules. This may involve:

  • Reviewing and updating the beneficiary designations on all your retirement accounts.
  • Amending an existing IRA or Retirement Trust to provide the flexibility needed to manage the 10-year payout rule tax-efficiently.
  • Considering other strategies, like Roth conversions, during your lifetime.

Current Retirement Account Rules (2025)

It’s also important to be aware of the current rules for your own accounts:

  • Contribution Limits: For 2025, the annual contribution limit for traditional and Roth IRAs is $7,000, or $8,000 if you are age 50 or older.
  • Required Minimum Distributions (RMDs): You must begin taking RMDs from your traditional IRAs and 401(k)s at age 73. Roth IRAs do not have RMDs during the original owner’s lifetime.

Is Your Plan Ready for the New Reality?

The rules for inheriting retirement accounts have fundamentally changed. An outdated plan can no longer protect your beneficiaries from a significant tax burden. If you have retirement accounts and have not reviewed your estate plan in the last few years, your family could be at risk.

Our attorneys can help you navigate these complex rules and ensure your retirement accounts are integrated properly into your overall estate planning. Call our office at (919) 256-7000 to schedule a consultation.