New rules for inherited IRAs have the heirs to these IRAs scrambling for solutions. Prior to the passage of the SECURE Act of 2019, heirs had their entire life span to take withdrawals from their inherited accounts. As of December 2019, however, the “stretch period” for inherited IRAs was reduced to a decade for heirs who are adult children and do not meet certain requirements (chronic illnesses, surviving spouses, minor children, certain age gaps between the deceased and the heir, etc.). 

The newly restricted heirs are now seeking alternatives to restore the “stretch” angle of the former stretch IRA, in large part because the shorter time period for withdrawals can have significant, negative tax ramifications. Heirs could end up having to increase their gross, taxable income by as much as 50 percent in some cases in order to fully distribute the inheritance by the end of the 10-year time frame. 

Some IRA experts have suggested converting the IRA after retirement, if the age of the heir permits, or taking advantage of years when you generate less income and withdrawing more of the capital in the inherited account to bring your income back up to previous levels. Some also suggested donor-advised funds to benefit charities and Roth conversions. 

If you are currently planning to leave your heirs an inherited IRA or if you expect to inherit such an account in the future, speak with your retirement account expert immediately to find out how to respond effectively to the passage of the SECURE Act.