10-Year Rule (SECURE Act)
The 10-Year Rule is a mandatory distribution requirement under the SECURE Act of 2019 (codified in IRC Section 401(a)(9)(H)) that requires most non-spouse beneficiaries of inherited IRAs and other qualified retirement plans to distribute the entire account within 10 years of the account owner's death. The rule replaced the Stretch IRA strategy for most beneficiaries and substantially accelerated the timeline over which inherited retirement accounts must be fully distributed and taxed.
The SECURE Act introduced the 10-Year Rule effective for deaths occurring after December 31, 2019. Beneficiaries who inherited accounts before that date retain the right to continue using the pre-SECURE life-expectancy payout under grandfather provisions. For deaths after the effective date, the rule applies to non-eligible designated beneficiaries, which encompasses the vast majority of inherited IRA recipients — including adult children, grandchildren, siblings, and non-spouse partners.
The mechanics of the 10-Year Rule as originally understood seemed straightforward: the entire inherited IRA balance must be distributed by December 31 of the tenth year following the year of the owner's death, with no required annual distributions in years 1 through 9. Beneficiaries could distribute as much or as little as they wanted each year, managing the timing of distributions (and associated income tax) around their own income situation.
However, IRS proposed regulations issued in February 2022 introduced a significant complication. The IRS interpreted the interaction of the 10-Year Rule with the RMD rules to require annual minimum distributions in years 1 through 9 when the deceased owner had already reached their Required Beginning Date (RBD) — i.e., had begun taking RMDs before death. This interpretation was controversial and caught many beneficiaries and advisors off guard. The IRS subsequently waived the annual RMD requirement for non-eligible designated beneficiaries under the 10-Year Rule for tax years 2021 through 2024, providing penalty relief while final guidance was developed. The waiver effectively allowed most beneficiaries to treat years 1-9 as discretionary during this transition period.
For Roth IRA beneficiaries subject to the 10-Year Rule, the mechanics are the same but the tax consequences differ: distributions from an inherited Roth IRA are tax-free (assuming the five-year rule on the original account is satisfied), making the timing of distributions within the 10-year window largely irrelevant from an income tax perspective, except to the extent that reinvesting distributed amounts in taxable accounts creates future taxable income.
Planning under the 10-Year Rule involves managing the recognition of taxable income across the 10-year distribution window to minimize the marginal rate on each distribution. A beneficiary with variable income — due to career changes, business cycles, or retirement — may choose to take larger distributions in years when their taxable income is lower and smaller distributions in peak-income years. The complete elimination of the account by year 10 creates an unavoidable income spike if large balances remain undistributed late in the period, making proactive distribution scheduling important for significant inherited accounts.