By Dr. Jim Dahle, WCI FounderThe first article about a Stretch IRA was published on this blog within its first two months, back in July 2011. Fourteen years later, somebody commented that it was out of date, and I realized I had never written another article with “Stretch IRA” in the title (although we had certainly covered the subject in articles like this one on RMDs on inherited IRAs).
So, I updated this article in July 2025.
What Is a Stretch IRA?
“Stretch IRA” is a term mostly used before the Secure Act was passed in late 2019. Plenty of articles at that time referred to the “Death of the Stretch IRA.” Prior to the Secure Act, money in an IRA, whether traditional or Roth, could be left mostly inside that account, where it could continue to enjoy tax-protected growth. Required Minimum Distributions (RMDs) did apply, but they were calculated based on age. So, if you left the IRA to someone very young, they may only have to withdraw 1% or 2% of it a year. If it then grew at 5%, 10%, or more a year, the actual balance of the IRA would climb. Even after decades of RMDs, that heir may have a balance that is 10 times as large as it was at the time of inheritance. With the Secure Act, Congress indicated that it thought this tax treatment was too generous, so it put rules in place limiting how much those IRAs could be stretched.
More information here:
Generational Wealth vs. Enough
7 Things Wealthy People Don’t Have to Worry About (and 7 They Do)
The 10-Year Rule
The main change was to implement a 10-year rule, which required the balance of most IRAs inherited after the Secure Act passed to be withdrawn within 10 years. No more stretching an IRA for 30, 50, or even 90 years.
More Complicated RMD Rules
Unfortunately, the rules were made even more complicated than just implementing the 10-year rule. For example, if the decedent was already of RMD age and died before the Secure Act passed, you, as the beneficiary, are required to also take RMDs. Even if the decedent wasn't taking them because they had a Roth IRA (which doesn't have an RMD requirement), the heir still must take the RMDs because once Roth IRAs are inherited, RMDs become required. Thankfully, there are some really nice calculators out there, such as this one from Vanguard, that help you determine your RMD requirements.
Here are the basic rules:
- If you inherited the IRA prior to the Secure Act passing, the old rules apply, and you can stretch the account for decades.
- If you inherited the IRA after the Secure Act passed, the 10-year rule applies (i.e., the entire balance must be distributed by the end of the 10th year after death).
- If the inheritor is a special person, called an “Eligible Designated Beneficiary” (EDB), there are even more unique rules. EDBs include:
- The spouse of the decedent
- The minor child of the decedent (but only until they turn 18)
- Someone not more than 10 years younger than the decedent
- A disabled or chronically ill individual, as defined by the IRS
- EDBs can use the lifetime distribution rules in place prior to 2020. That is to say, they get a true “Stretch IRA” because the IRS figures they won't be able to stretch it for all that long.
- If the inheritor is not a person (such as a trust or estate), a five-year rule applies (i.e., the entire balance must be distributed by the end of the fifth year after death).
- In addition to the 10-year (or five-year) rule, there are also RMDs required during that period if the decedent would have been old enough to have been required to take them on a traditional IRA, whether the inherited account is traditional or Roth.
Trust me, this is complicated. Use the linked calculator to sort out your RMD requirement.
Stretch IRAs are not as available as they once were, but the principles still apply. Tax-protected growth is valuable, and if you don't need the money, you should generally extend the time that money spends in a tax-protected account for as long as you can.
What do you think? Are you stretching your inherited IRA for as long as you can? Why or why not?
[This updated post was originally published in 2011.]
” Even if the decedent wasn’t taking them because they had a Roth IRA (which doesn’t have an RMD requirement), the heir still must take the RMDs because once Roth IRAs are inherited, RMDs become required”.
I thought that there were no RMDs required on an inherited Roth IRA, has this been recently changed?
It was unclear for a while, but eventually clarified that they are not required for spouses (if they make the IRA their own instead of an inherited one) but they are for most non-spouse beneficiaries.
https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
Inherited Roth IRAs
Generally, inherited Roth IRA accounts are subject to the same RMD requirements as inherited traditional IRA accounts. Withdrawals of contributions from an inherited Roth are tax free. Most withdrawals of earnings from an inherited Roth IRA account are also tax-free. However, withdrawals of earnings may be subject to income tax if the Roth account is less than 5-years old at the time of the withdrawal.
Distributions from another Roth IRA cannot be substituted for these distributions unless the other Roth IRA was inherited from the same decedent.
Think you are misinterpreting that based on an incomplete spelling out of the rule in the thing you cited.
That complete rule is:
“If a Roth IRA owner dies, the minimum distribution rules that apply to traditional IRAs apply to Roth IRAs as though the Roth IRA owner died before their required beginning date”
https://www.irs.gov/publications/p590b#en_US_2024_publink100089608
Thanks for that clarification. I like to go to the Ed Slott case questions to answer some nuanced situations. Here is what I read that a leaved my fears of having to do RMDs or year 1-9 distributions of a spouse/EDB-inherited Roth IRA, or RMDs on any inherited ROTH IRA, which the last basic rules bullet in the article seemed to imply: “The major aspects to this are first that all Roth owners are treated as passing prior to RBD, and therefore there are no annual RMDs required in years 1-9 of the 10 year rule. Second, while the separate account rules do not affect you, if the other beneficiaries who are EDBs do not establish separate inherited Roth accounts by 12/31/2023, they will no longer be treated as EDBs, but would fall under the 10 year rule without annual RMDs as is your situation, regardless of whether they create separate inherited Roth IRAs by the deadline.” I think a flow diagram is needed to know what to do, with deadlines included, “treat as your own” or establish an inherited IRA account, according to your circumstances.
Click on my name to see the original question reference from the Ed Slott help site. After further review of that site and IRS Pub 590B (2024) I concluded that a spouse EDB should just rollover the inherited Roth funds into their own Roth IRA account to clearly “treat as their own”. You can have a separate inherited Roth IRA account with same result but there is no reason for it. Just be sure the beneficiaries are correctly specified so the undistributed funds ultimately go for 10-year distribution options of the non-EDB inheritors. Traditional and non-spouse inheritance is a whole different ballgame and many articles and help sites fail to specify “Roth IRA” from “Traditional IRA” or spouse/EDB/non-EDB differences, including the IRS publication, lumping all information together as “IRA”. Its a shame one has to ferret out the specifics from an online answer, but that’s the state of confusion we are in with the Secure Act and follow-on laws and published IRS guidance.
I have an inherited trad IRA from approx 20 years ago from one parent and another one from two years ago. Stretching the first to the maximum and having to follow the 10-year rule with the more recent one.
The older inherited IRA had a pretty small initial value, but unsurprisingly has increased in value quite a bit (percentage-wise). I just take the RMD for this one and move on.
With the more recent inherited IRA, which is a much larger account, I’m taking the approach of withdrawing enough to make sure to top off any tax-advantaged space I have left over each year after making the contributions I would have planned to make. This would include, for example, 529s and the full employer contributions to solo 401k that I have never been able to max out in the past. Seems like this would be better than letting it grow until 8-10 years out and getting a major tax hit at marginal rates at that time, with less tax-advantaged space to offset the hit in those years.
Quite confused by the Security Act when it first came out, it seemed that if I or spouse divided our Roth IRA beneficiaries between spouse and kids the spouse would also be tied to the 10 year rule. Therefore at the moment our Roth IRAs are left fully to the spouse, not the best arrangement for our estate except for that concern that spouse would thereby lose the lifelong no RMD rule.
Can someone more clever than me decide if my concern is correct or if there is some way around tying spouses to the same 10 year rule if there are other beneficiaries on the same or perhaps a separate mutual fund in the same account?
Every situation can be different, but I can’t help but think there is some underlying inheritance tax planning that must be done before splitting a Roth IRA across generations. I recently tried the Boldin future modeling tool to sort out Roth conversions but it opened my eyes to other unexpected outcomes. For example if the prediction is correct for my situation, there will be significant taxable and Roth sums should one of us live to the expected 95-year age, the taxable being the greater. It kind of made more sense to leave the Roth to the first generation and non-Roth (taxable) to the next who would share in greater number and hopefully be young enough to have lower tax brackets. RMDs are such an evil thing due to increasing tax implications, I decided to gift any traditional balances before the projected first longevity date to avoid a complicated federal tax inheritance nightmare. Given your specific question, I would consult an expert on the Ed Slott site, there are considerations on inherited accounts and “treating as your own” that should be fully understood, and some policy morphs as time goes own.
Just a clarification on Eligible Designated Beneficiaries. If they qualify because of a disability and they inherit money through a third party special needs trust, it is still allowed to distribute over their lifetime, not the 5 years required with other trusts. That is an important distinction for special needs planning.
Thank you!