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Dollars & Sense: What Does the 10-Year Rule Mean?

By Roberta L. Nestor

It is getting more and more difficult to keep up with tax law changes these days.  We have had several in the past 4 years.  Notably the Tax Cuts & Jobs Act that was passed in December of 2017 and more recently the C.A.R.E.S. Act (Coronavirus Aid, Relief & Economic Security Act) that was passed in March of 2020.  Add to these President Biden’s proposed American Jobs Plan Act and it is easy to be confused and to understand how all of these affect us individually.

There is a part of the CARES Act that has gotten little attention, but certainly can impact your estate and retirement planning.  It was the elimination of the stretch IRA for non-spouse beneficiaries.  Prior to January 1, 2020, if you inherited an IRA (as a non-spouse) you had the option of treating that inherited IRA (ROTH, 401k or other retirement plan) as your own.  All you had to do was take an annual distribution based on your life expectancy – allowing you to stretch the IRA account out, basically for generations.

New Rules:  Individuals who inherit a retirement account must completely distribute the account by the end of the 10th year following the year of inheritance.  Example:  John is 80 years old and dies on February 7, 2020.  The primary beneficiary of his traditional IRA is his 55-year-old son, Chris.  The lifetime stretch IRA is no longer an option for Chris, so he needs to ensure that the account is fully depleted by December 31, 2030.  How Chris depletes the account balance over that 10-year period is entirely up to him.  There is no required minimum distribution each year, so he can be rather flexible.

Must all beneficiaries follow the 10-Year Rule?  No.  There are now 4 different types of individual distribution rules.  These individual rules are:

  • If you are the spouse of the decedent, disabled, chronically ill, or a beneficiary not more than 10 years younger than the decedent you can continue to use the stretch option.
  • If you are a minor child of the decedent you can continue to use the stretch option, however, minor children may only use the stretch option until the age of majority and then must deplete the account within 10 years. If in school, the stretch option may continue until the child finishes school or reaches age 26, whichever comes first.
  • Non-Eligible Designated Beneficiaries are all other non-spouse individuals and are subject to the new 10-year rule.
  • Non-Designated Beneficiaries are non-person beneficiaries, such as estates or charities. The 10-year rule does not apply to this group.  This group will either need to deplete the account within 5 years or will need to stretch RMD payments using the decedent’s life expectancy.

What is the best way to take the 10-year distribution?  There is no cut-and-dried response to this question.  You should seek tax planning advice as to the best way to withdraw assets from the inherited IRA to help minimize tax ramifications.  Individuals may elect to delay distributions for some tax-deferred growth, spread distributions equally over 10 years, or take everything up front (especially if it is a smaller account balance).  Any combination is fine with the IRS, but minimum amounts are not required to be withdrawn each year – as long as the full balance is depleted by the end of the 10-year period.

Does the 10-Year Rule Also Apply to Inherited Roth IRAs?  Unfortunately, yes.  The new rule applies, regardless of the type of IRA being inherited.  Because inherited Roth IRA assets are tax free to the beneficiary in most cases, it may be beneficial to leave the assets in as long as possible and not deplete them until the 10th year.  As always, clients should seek guidance from a tax or financial professional.

Roberta L. Nestor is a financial advisor practicing at 759 Boston Post Road in Milford, CT offering retirement, long term care, investment, and tax planning services.  She offers securities and advisory services as a Registered Representative and Investment Adviser Representative of Commonwealth Financial Network – a member FINRA/SIPC and a Registered Investment Adviser.  Fixed insurance products offered through Nestor Financial Network are separate and unrelated to Commonwealth.  Commonwealth Financial Network or Nestor Financial Network does not provide legal or tax advice.  You should consult a legal or tax professional regarding your individual situation.  Roberta can be reached at Nestor Financial Network, 203-876-8066 or

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