Withdrawal Rules for IRAs Inherited after 2019

At the end of 2019, Congress passed the SECURE Act eliminating the stretch IRA.  Absent being a spousal beneficiary, a disabled beneficiary, a chronically ill beneficiary, a beneficiary less than ten years younger than the IRA owner, or a minor child beneficiary under the age of 21, an inherited IRA must be distributed to a beneficiary by the December 31st of the year that is ten years after the year of the IRA owner’s death.

Many of our clients who have received inherited IRAs from relatives other than spouses have had questions regarding the new rules regarding the distribution of inherited IRAs.  The following paragraphs are meant to provide a general summary of the application of these rules.

Roth IRAs

Prior to the SECURE Act, an inherited Roth IRA could be stretched out over the beneficiary’s lifetime by taking the beneficiary’s life expectancy factor under the Single Life Table in the year after the Roth IRA owner’s death and then reducing that factor by one for each subsequent year.  Any successor beneficiary to the inherited Roth IRA beneficiary would have the remaining years of the inherited Roth IRA beneficiary’s calculated life expectancy to withdraw the Roth IRA.

Under the SECURE Act, the inherited Roth IRA can remain in the inherited Roth IRA until the December 31st of the year that is ten years after the year of the Roth IRA owner’s death.  So, if a Roth IRA was inherited in 2020, then the inherited Roth IRA beneficiary must withdraw the entire balance of the account by December 31, 2030.

For most Roth IRA beneficiaries, the prior inherited IRA withdrawal rules were better than the new rules despite the annual withdrawal requirement because of the opportunity to stretch the Roth IRA over the beneficiary’s life expectancy (perhaps 50 years or more for a grandchild).  However, there are some limited situations where retaining the inherited Roth IRA for 10  years leads to a better result (normally if the beneficiary’s life expectancy was greater than 10 years but not much longer than 15 years).

The overall takeaway is that you want to spend down your other assets over the ten years after inheriting a Roth IRA to the extent possible to allow your inherited Roth IRA to grow tax-free for ten years.

Traditional IRAs

The distribution rules for traditional IRAs prior to the SECURE Act were the same as the distribution rules for Roth IRAs.

With the passage of the SECURE Act, those rules changed.  The IRS has issued several notices since 2020 indicating that the inherited traditional IRA beneficiary is required to withdraw funds based on the prior stretch IRA rules described above and then has to take the balance of the inherited traditional IRA by the December 31st of the year that is ten years after the year of the traditional IRA owner’s death.

Suppose that a traditional IRA owner passed away in 2020 and that the beneficiary is 60 years old in 2020.  Starting in 2021, the beneficiary would look up their life expectancy under the single life table (the factor for a 61 year old is 26.2) and divide 26.2 by the 12/31/20 balance of the inherited traditional IRA and then would reduce the life expectancy factor by one each year through 2029 (the factor would be 18.2 in 2029) and then have to withdraw the balance of the money in 2030.  Because of transitional relief, inherited traditional IRA beneficiaries do not have to take their initial distribution until 2024.  For a 2020 traditional IRA beneficiary, they would subtract three from their single life beneficiary factor for 2021 to calculate their 2024 required minimum distribution based on the 12/31/2023 balance (the 2024 factor would be 23.2).  If the same beneficiary inherited the traditional IRA in 2021, they would subtract two from their single life beneficiary factor for 2022 (the 2022 factor would be 25.4 so the 2024 factor would be 23.4) to calculate their 2024 required minimum distribution.  Likewise, a 2022 traditional IRA beneficiary would subtract by one from their single life beneficiary factor for 2023 (the 2023 factor would be 24.5 so the 2024 factor would be 23.5) to calculate their 2024 required minimum distribution.

In practice, many traditional IRA beneficiaries attempt to smooth over their distributions over the ten year period (eleven years if you include the year of the IRA owner’s death) to keep their income tax bracket as low as possible.  However, if you inherit a traditional IRA a few years before your retirement, it can be advantageous to withdraw the minimum amount the first few years and then take more out after you retire when your income is lower.


At Schwartz Montoya Legal, LLC, we appreciate the complications of inherited traditional and Roth IRAs and how they may impact your own retirement.  We look forward to working with you both in helping you design IRA beneficiary designations to maximize financial benefit for your family and in designating the IRAs in accordance with your wishes.  Please do not hesitate to contact us at hello@pghestateplan.com or at (412) 419-1005 (voice or text) if you have any questions on this topic.

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