Align Your Legacy with the SECURE Act's 10-Year Rule
Episode 10
Align Your Legacy with the SECURE Act's 10-Year Rule
Published on October 15th, 2025
In Episode 10 of Retirement Tax Matters we tackle one of the most significant change to legacy planning in decades: the elimination of the Stretch IRA by the SECURE Act. Although this legislation took effect in 2020, its importance may have been easily missed in our fast-moving world, and new retirees are being reminded of its consequences. The new law replaces the old lifetime stretch RMD provision with a strict 10-year payout rule, forcing most non-spouse beneficiaries to withdraw an entire inherited Traditional IRA—and pay the associated taxes—within a decade. We break down how a multi-million dollar IRA, which was once a straightforward inheritance, could possibly become a complex, decade-long tax challenge for your children during their own peak earning years. The conversation then pivots to the primary solution: proactive Roth conversions, which allow you to pay the taxes now and leave a simple, tax-free inheritance. We also explore the powerful non-financial benefits of this strategy, such as providing your heirs with flexibility and peace of mind, which many of our clients find to be more valuable than purely optimizing for the lowest possible tax bill. Ultimately, we discuss how to frame this decision not just with a calculator, but by aligning your plan with your deepest values and goals for your family.
Key Tax Planning Questions
Click Below To See The Answer
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For most non-spouse beneficiaries, the answer is no. The ability to “stretch” an inherited Traditional IRA over a beneficiary's own life expectancy was a cornerstone of legacy planning for decades. However, this strategy was eliminated by the SECURE Act, which took effect in 2020.
The Old Stretch Rule:
Prior to 2020, a beneficiary could take Required Minimum Distributions (RMDs) from an inherited Traditional IRA based on their own life expectancy. This allowed the bulk of the Traditional IRA to continue growing tax-deferred for many years.For example, under the old rules, a 50-year-old child inheriting a $2,000,000 IRA would have had a relatively modest first-year RMD of about ~$58,000. While they could always take more, the ability to stretch the RMD created a predictable, and manageable stream of income over their lifetime.
The New 10-Year Rule
Today, the situation is dramatically different. That same inherited Traditional IRA is now subject to the 10-year rule. This mandates that the entire account balance must be fully distributed—and fully taxed as ordinary income—by the end of the 10th year following the IRA owner's death.For a 50-year-old beneficiary who is may be in their peak earning years, this is a significant challenge. To deplete a $2,000,000 IRA, they face the daunting task of strategically adding an average of $200,000 per year to their taxable income for a decade. Taking it all at once or waiting until the final year could push a massive portion of the inheritance into the highest federal tax brackets.
To add another layer of complexity, if the original Traditional IRA owner had already begun taking their own RMDs, the beneficiary is also required to take an RMD each year. This removes the flexibility to defer all distributions until the end of the 10th year.
The Bottom Line: Proactive Planning is Essential
The era of a passive, multi-decade stretch inheritance is over. Beneficiaries now face a compressed, 10-year tax-planning timeline. Effectively managing this requires careful annual income projections and a clear strategy to withdraw the funds as tax-efficiently as possible. A simple starting point might be to divide the balance by ten, but a personalized analysis is almost certain to yield a better result.
This information is for educational purposes only and should not be considered tax or legal advice. The rules surrounding inherited IRAs are complex and subject to change. Please consult with your qualified financial, tax, and legal professionals to discuss your personal situation. -
Deciding whether a Roth or a Traditional IRA is better to leave to a child is a complex planning question that depends on your primary goal.
For most people, this comes down to a choice between two very different objectives: tax minimization or beneficiary simplicity. We all want both, but a tension between the two almost always exists!1. The Goal of Tax Minimization
If the primary goal is to minimize the total taxes paid across your lifetime, your spouse’s and your children's), a detailed financial projection is necessary. A planner would analyze several key variables:Your current and projected future tax brackets.
Your beneficiary's current and projected future tax brackets.
The size of the Traditional IRA and the potential tax impact on your beneficiary under the 10-year rule.
From a mathematical perspective, leaving a Traditional IRA can be effective if the beneficiary is in a lower tax bracket than the original owner. Conversely, if the beneficiary is in a higher tax bracket, it often makes sense for the original owner to do Roth conversions during their lifetime, paying the taxes at their potentially lower rate.
2. The Goal of Simplicity
While tax optimization is important, many find that the ultimate goal is to make the inheritance process as easy and stress-free as possible for their loved ones. In this regard, the Roth IRA is the clear winner.A Traditional IRA Inheritance is often a complex, decade-long tax project for your beneficiary. They must carefully manage distributions to avoid being pushed into higher tax brackets.
A Roth IRA Inheritance is a straightforward gift. While the 10-year withdrawal rule still applies, the distributions are 100% tax-free. Your beneficiary has the flexibility to take the money as needed or simply let it grow tax-free for up to a decade without any forced annual withdrawals. The process is simple to understand and manage during a difficult time.
The Bottom Line
The closer your tax bracket is to your children's, the more compelling it is to have a conversation with your financial planner to ensure the inheritance you leave matches your intentions. -
This is an important question for HNW retirees, and the best approach involves two adjustments: one tactical and one philosophical. While it’s natural to focus on minimizing taxes, effective planning starts by first clarifying what’s most important to you.
Minimizing Taxes to Maximizing Purpose
Fear of a large tax bill can lead us to implementing unnecessary complexity. I’ve seen clients do this time and time again, and it’s very natural.
We like to reframe the question and ask: "When you look at your family and your finances, what is most important to you?" The answer is rarely just tax mitigation; it’s often about ensuring simplicity for heirs or maintaining family relationships.The Primary Tactical Solution: Roth Conversions
Once your goals are clear, the most powerful tool to address the 10-year rule is the Roth conversion. By systematically converting traditional IRA assets to a Roth, you are choosing to pay federal income taxes now. This reduces your future RMDs and, more importantly, allows you to leave a simple, tax-free inheritance, removing the decade-long tax burden from your beneficiaries.
An Important Reality Check for Parents
A common theme in our planning conversations is the parent who sacrifices their own quality of life to leave the largest possible inheritance, even when their children are already financially successful. Often, those children would be far happier seeing their parents use their wealth to enjoy a worry-free retirement. It's crucial to ensure your legacy plan doesn't come at the cost of your own well-being.The Bottom Line
There isn't always a single right answer. It's easy to get hyper-focused on minimizing taxes because it feels like the prudent thing to do—it can almost be an escape route from the bigger questions.
By all means, consider Roth conversions as a powerful tool. But most of all, try to align your financial planning with your most important goals. If you're doing that, and you have to pay a little more in taxes along the way, I think things will turn out better in the end.
Full Episode Transcript
Adam: Good morning and welcome to Retirement Tax Matters. I'm Adam Reed, and this is Garrett Crawford, our resident CFP. We're excited for you to join us this morning. How are you doing, Garrett?
Garrett: I'm doing pretty good. What about you, Mr. Reed?
Adam: Doing well. You know, it's still kind of summer in the afternoons and fall in the mornings. I am ready for full on fall.
Garrett: Yeah. I was at Starbucks this morning, and it was getting cold. I like fall, but it reminds me that winter is coming. Like the squirrel, we must plan for the winter. So I think that's what we're talking about today.
Adam: Yep. And planning for different inheritance situations. Today, I think we're going to talk through the implications of losing the stretch IRA and how the Secure Act has changed the landscape. It's been a whirlwind the last five years with the pandemic and legislative changes, and it feels like some things have fallen through the cracks. I want to share our thoughts on how to plan around the elimination of the stretch IRA.
Garrett: That sounds like a great idea.
Adam: The title of this one is "Aligning Your Legacy with the Secure Act 10-Year Rule." Let's dive into that. I guess we'll start with where we came from before the Secure Act was passed, which I think was 2020. Before that, there was the stretch IRA. Give me some insight into that—why was it so valuable, and what does its loss mean for families now?
Garrett: You mentioned "stretch IRA" enough times that I'm thinking about an exercise class we're about to roll out here. You remember 2020? I feel like that was a mile marker year for a lot of people, but not for the reasons we are talking about today. The Secure Act, and a couple of following legislative changes, was kind of slid in that year. Even when it passed, it was under the radar while the world was dealing with other issues. It was a landmark piece of legislation that drastically impacted retirement planning—probably the biggest rule change in my career and for many who started earlier than me. This was the elimination, or the death, of the stretch IRA. For people listening, if you're in your sixties, you might remember talk of a stretch IRA. I think that's a great place to start, Adam. Let's talk about what the stretch IRA was to remind people of what we've lost, and then we'll move into actionable financial planning strategies. The reason the stretch IRA was so good was for beneficiaries. Let's take a married couple where the husband dies first and has a large IRA. Things transition to the remaining spouse almost exactly as you would expect, and it's not a big issue. The IRA goes to the spouse simply and expectedly. But when the second spouse passes, that's when the expectations of the beneficiaries—and probably the deceased parents—are often not met with how that transition happens. Back before 2020, with the stretch IRA, let's say Mom and Dad both died and left a million-dollar IRA to two kids, each inheriting $500,000. The stretch IRA worked by having a required minimum distribution (RMD) that they had to take each year. This RMD was like a retiree's, but the number you divided the $500,000 by was much larger—based on the beneficiary's life expectancy—which meant the required distribution was much smaller. For someone in their fifties, that RMD number would be based on their life expectancy, maybe around 40 years. If you divide $500,000 by 40, the IRS required a very small amount to be taken out that year, and the rest could keep growing in the IRA for the rest of their life. For many people, especially if a parent died young, they could take small distributions on that money for the rest of their life. It was a really good fit. In 2020, the Secure Act eliminated a child's ability to inherit a traditional IRA and stretch it over their lifetime. Part of the reason they eliminated it was to accelerate income to make budget proposals look better. They said anyone who inherits a traditional IRA after 2020 (meaning the date of death is after January 1st, 2020) will usually have to distribute all of that traditional IRA money, not over 30, 40, or 50 years, but in 10 years. The reason this is such a monumental shift is that where there used to be a very long period to distribute, now, if Mom and Dad both die in their late eighties or nineties, their children are likely inheriting that pre-tax traditional IRA money during their peak income-earning years, in their fifties or sixties.
Adam: And that's where we hear the term "tax bomb." It's just sitting there, ticking down. It reminds me of the show 24—just waiting for something to go wrong. So, in light of that, what can people do to proactively plan to avoid some of those things? How can they set the legacy money up in a good spot where it's not this ticking time bomb, but actually offers more flexibility in the next generation's planning once they receive the funds?
Garrett: I feel like I wanted to do a whole podcast just on this topic, but as you know, the idea of proactive planning around this tax issue comes up in almost every episode because financial planners' favorite tool is a Roth conversion. Your question is hinting at: "If my children are going to inherit IRA money, how do I manage this in the most prudent way possible?" Like a lot of things in making good financial planning decisions, it's just thinking ahead. The hard part about thinking ahead is that we don't know what life will throw at us, and tax laws change all the time. So you're left in a position where you can be paralyzed and not do anything. But I think probably the very best thing people can do—and we've said this a lot—is instead of trying to get lost in a 30 to 40-year time period, optimize each year. Do a tax projection, figure out where your income level is at the end of the year, and see if you have room to do a Roth conversion. A Roth conversion allows you to pay that tax now so that those IRAs don't continue to grow and then go to your children as completely taxable income when you and a spouse die.
Adam: Are there any cases—and I know there are some—where Roth conversions wouldn't make sense for a high net-worth retiree who is thinking about a long-term legacy inheritance? Maybe their kids are lower income, or perhaps they want to do a lot of large Qualified Charitable Distributions (QCDs) toward the end of their life. Are those the main considerations?
Garrett: I think that hits the nail on the head with some of the challenges here. I've probably mentioned this before, but my background is in engineering, and I was taught to write down all the data to figure out the best solution to a problem. Early in my career, I viewed the Roth conversion conversation strictly in light of whatever the calculator said would pay the least amount of tax over a lifetime. Sometimes I'd say once you hit the 24% tax bracket, it's hard to justify a Roth conversion when you jump up to the 32% level. Especially if Mom and Dad saved a lot of money—say $5, 6, 7, or $8 million—and while they'll spend a good chunk, there's a really good chance the children may inherit a few million. What if one of those kids is a physician in the highest tax bracket level, and the other has a lower-paying occupation? Maybe a teacher, who is on a lower salary. How do you structure the money if half is going to a child who is a physician and the other half is going to a teacher? In an ideal world, if you wanted to transfer the most money to each child, maybe it would be better for the child who has a lower income tax bracket to inherit a traditional IRA, and for the higher-earning child, it would be better to inherit a Roth IRA. So you're using your own tax situation to leverage how much to convert to Roth and who to leave that to. I say all that, but I think it's incredibly tough to pull something off like that. I've never had a client take the step to say, "I'm going to give one child a tax-free Roth IRA and the other, lower-earning child a taxable pre-tax asset." It just doesn't happen. So I think this conversation often comes back to: Instead of Mom or Dad worrying about a calculator answer, how can I simplify this?
Adam: This is my last question for today. There are the X's and O's—the people who crunch the numbers and are wired that way. They want to know if they'll have one penny more in 20 years or pay one less penny in taxes. But there are also non-financial benefits. Can you fill us in a little bit on those non-financial benefits? Is it more simple? Is there more flexibility? What are the non-financial benefits that, even if the calculator comes out pretty even or maybe a little bit behind, offer some peace of mind or ease of life that still makes the Roth conversion make sense?
Garrett: I've probably had this conversation 10 times in the past two weeks. I try to help people get past our natural default, which is to look at the calculator and what the financial planning software says. Often, it's pretty close and hard to tell. If you live a little longer, it might work out better to do the Roth; if you don't, maybe you shouldn't. I always try to remind people that there are non-financial benefits of doing a Roth conversion. The first one is, it's kind of like paying off your house. When interest rates were 3, 4, or 5%, it felt really good to pay off your house. Maybe you could have earned more money in the stock market, but having no debt is exciting. With Roth conversions, when you pay taxes on that IRA money, you know you never have to pay tax on that again, and it will grow tax-free. There is a non-financial benefit of feeling like you have loosened the chain of the IRS, and if the money grows, they don't get an additional piece of that. So, are you paying taxes to do that? Yes, but I think there is a non-financial benefit of just having tax-free growth and not having to watch Congress debate law changes or tax bracket increases. The other one is the simplicity for beneficiaries. Let's say you do a Roth conversion and have a few million dollars in a traditional pre-tax IRA, and your plan is maybe to get two-thirds of that into a Roth IRA over the course of your retirement. When that money is left to a child, an eligible designated beneficiary, the conversation is starkly different than the one I have with beneficiaries who inherit a traditional IRA. When they inherit a traditional IRA, the conversation goes something like this: "Your Mom and Dad left you $400,000 in an inherited traditional IRA. You have 10 years from the date of death to distribute this entire IRA. Because Mom was older than the required minimum distribution age, the IRS is going to require you to take a certain amount out each month. I probably won't be recommending the minimum amount to you because if we just take the minimum amount, this is going to build and build over 10 years, and you'll have a huge amount that you have to pull out in the 10th year, which could cause you to go up into a higher tax bracket. So, we really need to be thinking each year with your inherited IRA about how much we can possibly get out without triggering the next tax bracket. But some years, we may have to go up just because we're going to be hammered." A beneficiary at that point is usually thinking, "Ooh, this is more complicated than I thought it was." If I had that same conversation with an inherited Roth IRA, the conversation is much simpler: "Mom and Dad left you $400,000. Here's the great thing: you have 10 extra bonus years where this money can accumulate tax-free. You can take as much as you want right now, or you can leave it all in there until the end of the 10th year." The beneficiary is basically saying, "Wow, okay, I have 10 years of growth, and it's very flexible. I can pull it out whenever I need to." I'm not saying an inherited Roth IRA is always better, but I will say it's almost always better when you're explaining it, and it's simple for beneficiaries to wrap their mind around and be in control of it.
Adam: I think that's a good apples-to-apples comparison to wrap us up and show why it's helpful and important to be thinking through it. Like we always say, it's not a home run slam dunk every time. Even the other day, we were looking at one where the math didn't really make a whole lot of sense, but it may be something the person is interested in because of the non-financial benefits. Then it becomes, "What do you think?" and discussing that. If you're doing it yourself at home, discuss it with your spouse or maybe even the people who are going to inherit the money: "What is your income right now? Does it make sense for you to get tax-free money?"
Garrett: In fact, one of my clients landed there the other day. I was talking to him about the non-financial benefits of Roth conversion, and he said, "You know what, that makes a lot of sense, and I'm going to talk to my son. Maybe he would have a preference in this, and maybe that would allow him to retire early if we paid the taxes now." So, he's using it as a jumping-off point to have a discussion with his son: "I'm not going to use any of this money; it's probably coming to you. Do you have any input?" I think that's wonderful.
Adam: Hey, Thanksgiving's around the corner—get your beneficiary legacy conversations out at the dinner table and enjoy time with family. But I think that's good for today. Thank you for joining us on Retirement Tax Matters. We're on Apple Podcasts, Spotify, and YouTube. Check out the website. I have a free resource there, a six-point checklist for high net-worth retirees, and a place to submit questions.
Garrett: I'd also tell people we have a newsletter sign-up on the homepage. Complementing the YouTube video, I try to send something out that adds a little extra to this conversation. The newsletter on top of this video—that's where to hang out.
Adam: We were talking about this the other day, and our goal really is to add value to clients. When you get an email, there's something valuable in there. When you watch a video, there's something valuable there. It's not just to pump out content. We want to add value to people's lives and their financial planning. So, keep following along and hanging out with us, and we'll see you next time. I'm Adam Reed. This is Garrett Crawford.
Garrett: Always good to be here.