Retirement Planning, Elder Law, and Senior Finance

6/8/2022 | By Sandra Block

Sandra Block of Kiplinger’s Personal Finance explains what IRA owners and heirs need to know about the tougher rules from the IRS for inherited IRAs, the ramifications, and a workaround.

Managing inherited IRAs has never been easy, and it soon could become even more complex.

Under the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which took effect in 2020, adult children and other non-spouse heirs are required to deplete inherited IRAs and other tax-advantaged accounts within 10 years of the death of the original owner. Previously, these heirs could take withdrawals over their life expectancy, which reduced the size of annual withdrawals and allowed untapped assets to continue to grow.

The law didn’t change the rules for surviving spouses, along with heirs who are disabled or are no more than 10 years younger than the original IRA owner. Those heirs can roll the money into their own IRAs or take withdrawals over their life expectancy.

In the months after the law took effect, many financial professionals assumed the new rules meant non-spouse heirs could wait until the 10th year to deplete their inherited IRAs, which would provide them a decade of tax-deferred growth. Heirs who were planning to retire in a few years could postpone withdrawals until they fell into a lower tax bracket, which could reduce taxes on their withdrawals.

Three generations of women at a laptop. Photo by Nanditha Rao Dreamstime. A look at tougher rules for inherited IRAs, IRS guidance, the ramifications, and a workaround: what IRA owners and heirs need to know.

But recent proposed guidance from the IRS puts the kibosh on this withdrawal strategy. Under the proposed rules, non-spouse heirs would be required to take annual withdrawals, based on their life expectancy, if the original owner died on or after his or her required beginning date for distributions from a traditional IRA. Under current law, that date is April 1 after the year the original owner turned 72. After taking required annual withdrawals for nine years, heirs would be required to deplete the balance of the account in year 10.

If the original owner died before that date, the heirs wouldn’t be required to take annual withdrawals but would still be required to deplete the account in 10 years.

The proposed guidance also creates a conundrum for individuals who inherited an IRA after Jan. 1, 2020, and delayed taking withdrawals because they believed they had 10 years to deplete the account. Although the rules suggest they should have taken a withdrawal last year, “you can’t go back and take a 2021 distribution unless you have a time machine,” says Ed Slott, founder of Slott predicts that the IRS will provide a waiver for those heirs.

Seniors who want to reduce the tax burden on their heirs may want to consider converting some of the funds in their traditional IRAs to a Roth IRA. The IRS’ proposed rules make Roths even more attractive to inherit, Slott says.

While the SECURE Act also requires non-spouse heirs to deplete Roths within 10 years, the withdrawals are tax-free. And since Roth owners don’t have to take required minimum distributions, there is no required beginning date for Roth IRAs, Slott says. That means individuals who inherit a Roth will still be able to wait 10 years to deplete the account, which will provide them with a decade of tax-free growth.

© 2022 The Kiplinger Washington Editors, Inc. Distributed by Tribune Content Agency, LLC.

Sandra Block

Sandra Block is a senior editor at Kiplinger’s Personal Finance magazine. For more on this and similar money topics, visit