3713.08 / What types of estate planning strategies can individuals use to replace the “stretch” IRA post-SECURE Act?

After the original SECURE Act was signed into law, taxpayers and advisors quickly realized that the inherited IRA had lost a key quality: the ability for beneficiaries to stretch the associated tax liability over their lifetime. The IRS further limited the tax deferral benefit by releasing proposed regulations that require beneficiaries to take taxable distributions each year. Now, many individuals are searching for alternatives to replace the so-called “stretch” IRA.

Before the SECURE Act became law, inherited IRA beneficiaries could stretch the tax liability associated with these accounts over their own life expectancy. Post-SECURE, only eligible designated beneficiaries (EDBs) have that option. EDBs include (1) surviving spouses, (2) disabled or chronically ill beneficiaries, (3) beneficiaries who are not more than ten years younger than the original IRA owner and (4) the original IRA owner’s minor children (until they reach age 21).

All other beneficiaries must empty the account within ten years of the original IRA owner’s death (paying ordinary income taxes on those distributions). Before the IRS released proposed regulations, most experts believed that beneficiaries wouldn’t have to take RMDs during the first nine years, leaving the option of deferring all taxes until year 10.