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. Forteen years later, somebody commented that it was out of date, and I realized I had never written another article with “Stretch IRA” in the title (although we had certainly covered the subject in articles like this one on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. Note that comments posted below this article may refer to the original version.
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was to implement a 10-year rule, which required the balance of most IRAs inherited after the Secure Act passed to be withdrawn within 10 years.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 don'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?
$9 billion dollars?! Wow.
That is better than the lottery jackpot this week.
Of course, $9 Billion in a few decades isn’t the same as $9 Billion now.
If a minor inherits a Roth IRA and is required to take RMD, is the withdraw tax free or would the “kiddie tax” override/apply and become taxed at the parents marginal rate? Would this money be withdrawn into a UTMA/UGMA account and not taxed at the parents rate? Also, can you confirm the requirements that a Roth IRA has to be held for 5 years before making withdrawals in order to take advantage of the benefits? I am working on some estate planning, and just trying to think through some of these issues/constraints and was wondering if you had any advice.
Nope, tax free.
There are two Roth IRA 5 year rules:
https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/
In order to transfer the Roth IRA and receive the stretch benefits for a minor, what is the best method to achieve this: beneficiary designation, will, trust, or other? I would like to include instructions on how to handle this from the beneficiaries perspective, and I guess I am not really sure how this transfer would take place, and what information they or the guardian/fiduciary would need to know.
Beneficiary would be fine and probably best.
Is there anything to stop families from gifting money to older generations so they don’t spend there IRAs and pass them along to younger generations?
Not as long as you stay within gift limits. But I see little sense in doing that unless they need more than their RMDs. Those have to come out of the account anyway.
Not Roths though right?
Not Roths though right?
Sorry, what I was trying to say is that it would seem to make sense for younger generations to convince older generations with Roths to allow them to gift (under gift limits) to support these older generations “in exchange” for keeping the Roth in the family to continue to accrue tax free growth. Essentially, younger generations would always be better off gifting money to buy down a parents Roth that the parent was planning on using rather than investing in taxable accounts if that were the best investment available to the younger generation and they were looking for more. For that matter it would even be better to gift money to older generations for them to do taxable investments that would then have step up basis back to the younger generation upon inheritance. Just wondering whether people discuss such family wealth building strategies or whether the IRS does anything to stop this. Sorry for the unclear questions previously. I appreciated the reply and hope this is more clear.
Yes, there are lots of ways the generations can work together to build wealth, and steps like you suggest are good examples.
https://www.whitecoatinvestor.com/building-wealth-across-the-generations/
Of course, your example may not be nearly as great if the IRA laws are changed as has been proposed to minimize the ability to stretch them. Nothing illegal about it, but few do it because of lack of education, lack of means, and lack of trust of the other generation.
I love the idea in theory, but requires everyone for multiple generations to be on board and be as financially savvy as their ancestors. Haven’t seen too many billionaires today that got that way from just inheriting Roth IRAs.
Reminds of what people think being a doctor is like: On TV, doctors always have freshly pressed white coats with no stains, they appear to be in no hurry at all ever and just effortlessly make $500,000 per year.
In reality we are working nonstop, fighting insurance companies to pay us as the next shift of medicaid patients rolls in.
So in reality, at some point during this fantasy of leaving a Rockefeller like trust to our children, someone will just cash it out, become entitled and lose it in a divorce or some other nonsense.
But again, love the idea of it, I will certainly try it. Can someone please check in on my great-great-great grandchildren to make sure they are financially responsible billionaires?
🙂
Please look into the possibility that your article needs revision, based on current RMD tax law. Inheriting an IRA does not calculate withdrawal based on the life expectancy of the beneficiary. Under current RMD laws, unless you are a spouse, my understanding is the money must be withdrawn within 10 years. This is a hefty burden on the non-spousal beneficiary, as it could significantly increase one’s taxable, annual income.
Thanks for the heads up and feedback. There are lots of articles that “need updating” on a 14+ year old blog. So they’re never all up to date at once, but we do try to update them periodically. This 2011 article certainly doesn’t incorporate the changes from the Secure Act and those were certainly substantial. Updating this one or writing a new one would be worthwhile. I’ll put it on my to do list.