Stretch IRA (pre-SECURE)
The Stretch IRA was an estate planning strategy, available under pre-SECURE Act law, that allowed a non-spouse IRA beneficiary to take Required Minimum Distributions from an inherited IRA over their own life expectancy rather than over the deceased owner's remaining life expectancy. By stretching distributions over decades, younger beneficiaries could dramatically extend tax-deferred growth within the inherited account, transforming a retirement savings vehicle into a multigenerational wealth transfer tool.
Under the rules that governed inherited IRAs prior to the SECURE Act (enacted December 20, 2019), a non-spouse beneficiary could elect to take distributions from an inherited traditional IRA over their own single life expectancy, determined under the IRS Single Life Expectancy Table. A 25-year-old beneficiary inheriting an IRA had a life expectancy factor of approximately 58 years under the old tables, meaning the minimum annual distributions would be calculated by dividing the prior year-end balance by the initial life expectancy factor reduced by 1 each subsequent year. The bulk of the account could remain invested and growing tax-deferred for decades.
The strategic power of the stretch was most pronounced for young beneficiaries inheriting large traditional IRAs or 401(k)s. Consider a beneficiary who inherits a $1 million IRA at age 30. Under stretch rules, the required distribution in the first year might be approximately $20,000 (based on a roughly 50-year life expectancy factor), while $980,000 continues to compound tax-deferred. Over 30 or 40 years, the compounding effect could produce distributions and residual account value far in excess of the original $1 million, with only a modest annual tax drag from the small mandatory distributions. Roth IRA beneficiaries using the stretch faced the same distribution schedule but paid no tax on the distributions, amplifying the benefit further.
The stretch was widely marketed by financial institutions and estate planning attorneys as one of the most powerful multigenerational planning tools in the U.S. tax code. Advisors recommended designating young grandchildren or other low-income beneficiaries rather than trusts (which faced compressed income tax brackets) to maximize the compound growth benefit. Conduit trusts were often used when the beneficiary was a minor or otherwise unsuitable to manage the account directly, with careful drafting to ensure the trust was a qualified designated beneficiary under Treasury regulations.
The SECURE Act fundamentally ended the stretch IRA for most beneficiaries by replacing the life-expectancy payout with the 10-Year Rule for non-eligible designated beneficiaries. Only Eligible Designated Beneficiaries — a defined category including the surviving spouse, disabled and chronically ill individuals, minor children of the deceased owner (until they reach the age of majority), and beneficiaries not more than 10 years younger than the deceased owner — retain the ability to use a life-expectancy payout. All other beneficiaries, including adult children and grandchildren who were the primary users of the stretch strategy, must now fully distribute inherited IRAs within 10 years.
The elimination of the stretch IRA prompted widespread reconsideration of beneficiary designations, trust structures, and Roth conversion strategies. Converting a traditional IRA to a Roth IRA before death effectively shifts the tax burden from the beneficiary to the owner (at potentially lower rates), and the 10-year payout of a Roth IRA to a non-eligible designated beneficiary is tax-free, compared to fully taxable distributions from an inherited traditional IRA under the same schedule.