I cannot count how many times I have sat across the desk from a son or daughter who just inherited a parent's IRA and asked me the same question: "Can I just leave it alone and let it keep growing, the way my parents did?" The honest answer, for almost everyone inheriting an IRA today, is no. The rules changed dramatically, and the change has quietly reshaped estate planning for nearly every family with retirement savings.
The confusion is understandable. For decades, a non-spouse beneficiary could "stretch" distributions from an inherited IRA over their own life expectancy, sometimes for forty or fifty years, letting the account grow tax-deferred for a lifetime. That strategy is gone for most people. What replaced it is a compressed timeline with a hidden trap that has caught even sophisticated beneficiaries off guard, and it interacts with New York's own tax rules in ways that deserve careful attention. As a New York estate planning attorney, I want to walk you through what actually changed, who is still exempt, and where I see families make expensive mistakes.
The Stretch IRA Is Gone: What Changed
The SECURE Act, effective for deaths occurring in 2020 and after, eliminated the stretch IRA for most non-spouse beneficiaries. Before this law, a beneficiary could take small required distributions calculated over their own life expectancy, which meant a grandchild inheriting an IRA might spread withdrawals over six or seven decades. Congress viewed this as an unintended tax shelter for inherited wealth rather than a retirement savings tool, and the SECURE Act replaced it with a much shorter distribution window for most beneficiaries.
This was not a minor technical adjustment. It fundamentally changed the tax planning calculus for anyone who expects to inherit a significant retirement account, and it changed how I advise clients to structure beneficiary designations, trusts, and overall estate plans. A plan built around stretch IRA assumptions before 2020 may no longer work the way it was originally designed, which is one of the many reasons I encourage clients to revisit their estate planning documents periodically rather than treating them as a one-time project.
The 10-Year Rule Explained
Under the new default rule, most non-spouse beneficiaries must fully distribute the entire inherited IRA by December 31 of the tenth year following the original account owner's death. There is no requirement to take equal installments along the way in every case, and beneficiaries have flexibility in how they time withdrawals within that window, but the account must be emptied by the end of year ten. Wait too long, and you may find yourself forced to withdraw a very large sum in a single year, pushing you into a higher tax bracket at the worst possible time.
I want to be precise about the mechanics here because the details matter enormously for tax planning. The clock starts the year after the original owner's death, and the account must reach a zero balance by the tenth December 31 after that. Many families assume they can simply wait until year ten and withdraw everything at once. Sometimes that is permissible, but as I explain in the next section, the IRS's 2024 final regulations added a wrinkle that changes this calculus for a large number of beneficiaries. For the government's own explanation of these mechanics, the IRS guidance on required minimum distributions for IRA beneficiaries is a useful starting point, though I would not rely on it alone to make decisions given how technical and frequently updated this area of law has become.
Who Is Exempt: Eligible Designated Beneficiaries
Not everyone is subject to the 10-year rule. Congress carved out a category called "eligible designated beneficiaries" who can still stretch distributions over their own life expectancy, much like beneficiaries could before 2020. If you fall into one of these categories, the rules are considerably more favorable, and it is worth confirming your status carefully rather than assuming the 10-year rule applies by default.
- Surviving spouses, who have the most flexibility of any beneficiary category and additional options described below.
- Minor children of the original account owner, who can stretch distributions until they reach the age of majority, at which point the 10-year clock begins to run. Note that this exception applies only to the deceased owner's own minor children, not to grandchildren or other minor relatives.
- Disabled or chronically ill individuals, as defined under strict IRS criteria, who may stretch distributions over their lifetime.
- Beneficiaries not more than ten years younger than the original account owner, such as a sibling close in age, who also qualify for lifetime stretch treatment.
Everyone else, including most adult children, grandchildren, and non-relative beneficiaries, falls under the standard 10-year rule. This distinction is precisely why beneficiary planning has become more nuanced. Naming a much younger beneficiary who does not fit an exempt category no longer produces the decades-long deferral it once did, and that reality should factor into how you decide who to name and in what proportions.
The Annual RMD Trap Inside the 10-Year Rule
This is the detail that has surprised the most people, including plenty of financial professionals. When the SECURE Act first passed, many assumed that beneficiaries subject to the 10-year rule had complete flexibility to withdraw funds however and whenever they wanted within the ten-year window, as long as the account was empty by the end. The IRS's final regulations, issued in 2024, clarified something different and more restrictive.
If the original account owner died on or after their required beginning date for RMDs, meaning they had already started taking their own required minimum distributions, beneficiaries subject to the 10-year rule must also take annual required minimum distributions during years one through nine, not merely empty the account by year ten. Skipping annual distributions in that scenario is not simply a matter of deferring taxes to a later year, it is a compliance failure that can trigger penalties. Because this requirement caught so many beneficiaries off guard in the years immediately following the SECURE Act, the IRS provided penalty relief during the transition period while the final rules were being finalized, but that relief will not last forever and should never be relied upon as a long-term strategy.
Key takeaway: Whether you owe annual required minimum distributions during the 10-year period depends on whether the original account owner had already reached their required beginning date before death. This single fact changes your entire withdrawal strategy, and getting it wrong can mean unexpected penalties on top of an unexpected tax bill.
Spouses Have More Options
Surviving spouses remain in a distinctly more favorable position than any other beneficiary category, and it is worth understanding why. A spouse can choose to remain a beneficiary and stretch distributions over their own life expectancy, take advantage of the more generous rules available to eligible designated beneficiaries, or, in many cases, do something no other beneficiary can do at all: a spousal rollover.
A spousal rollover allows a surviving spouse to treat the inherited IRA as their own, retitling it in their own name rather than keeping it as an inherited account. This can be advantageous because it allows the surviving spouse to delay required minimum distributions until they reach their own required beginning age, and it gives them the ability to name new beneficiaries of their own choosing going forward. Whether a rollover or remaining a beneficiary makes more sense depends heavily on the surviving spouse's age, other income, and long-term goals, and I strongly recommend discussing the decision with an advisor before acting, since a rollover cannot always be easily undone.
New York Tax Considerations for Inherited IRAs
New York does not impose a separate state inheritance tax on retirement accounts. There is no additional New York tax simply for inheriting an IRA. However, that does not mean inherited IRAs escape New York taxation altogether. Ordinary New York state income tax applies to taxable distributions as they are withdrawn, meaning every dollar you pull out of an inherited traditional IRA is generally taxed as ordinary income at both the federal and state level in the year you receive it.
This is where timing decisions within the 10-year rule genuinely matter. Spreading withdrawals evenly, or strategically timing larger withdrawals in lower-income years, can meaningfully reduce the combined federal and New York tax burden compared to waiting and taking one enormous distribution in the final year.
There is a second, separate New York tax issue that families often confuse with inherited IRA taxation: the New York estate tax, which applies to the decedent's overall estate rather than to IRA distributions themselves. New York's estate tax exemption is adjusted annually for inflation and stood at $7.16 million in 2025. What makes New York's system especially unforgiving is its "cliff" feature. If a taxable estate exceeds the exemption amount by more than 5%, the exemption is not simply reduced, it disappears entirely, and the tax applies to the full value of the estate rather than just the amount above the exemption. An IRA counts toward the estate's value for this calculation even though the beneficiary pays income tax on distributions separately, which means large retirement accounts can push an otherwise modest estate over the cliff. I go into much more detail on how this cliff works and how to plan around it in my article on how New York estate tax actually works, and if your estate is near the exemption threshold, our estate tax planning team can help you evaluate strategies before it becomes a problem rather than after.
Coordinating Beneficiary Designations With Your Estate Plan
One of the most overlooked aspects of inherited IRA planning has nothing to do with the SECURE Act's distribution timelines at all. It has to do with who is actually named on the beneficiary designation form sitting in a file at your custodian's office, which controls where the account goes regardless of what your will says.
Beneficiary designations pass outside of probate and take priority over the terms of a will. If your IRA beneficiary form still lists an ex-spouse, a deceased relative, or is left blank so that the default beneficiary becomes "my estate," the account can end up forced through probate, and it will typically lose the favorable tax treatment and flexibility available to a properly named individual or trust beneficiary. I have seen families lose months to probate delays and thousands of dollars in avoidable taxes because a beneficiary form was never updated after a divorce, a remarriage, or the birth of a grandchild. These forms should be reviewed regularly, not filed away and forgotten, and they should be reviewed alongside your broader will and trust documents to make sure everything works together rather than at cross purposes. I wrote a detailed guide on this exact issue that walks through how to review and correct these forms, which you can find in our beneficiary designation guide, and our wills and trusts attorneys regularly help clients align these designations with the rest of their estate plan.
Common Mistakes
The most frequent mistake I see is beneficiaries assuming they have ten full years of complete flexibility with no annual obligations, only to discover after the fact that annual RMDs were required all along under the 2024 final regulations, resulting in missed distributions and potential penalties. A close second is waiting until the final year to withdraw everything at once, which can trigger a dramatically higher tax bracket and a far larger combined federal and New York tax bill than a spread-out withdrawal strategy would have produced.
I also frequently encounter outdated beneficiary forms that undo years of careful estate planning, trusts named as IRA beneficiaries without the proper provisions to qualify for favorable treatment under the SECURE Act's "see-through trust" rules, and families who fail to determine whether a beneficiary actually qualifies as an eligible designated beneficiary before assuming the worst-case 10-year rule applies. Each of these mistakes is avoidable with proper planning done in advance rather than damage control done after the fact.
When to Get Help
Inherited IRA rules sit at the intersection of federal tax law, New York state tax law, and estate planning, and the 2024 final regulations made this area more technical, not less. If you have recently inherited an IRA, are unsure whether you qualify as an eligible designated beneficiary, or want to make sure your own beneficiary designations will not create problems for the people you love, it is worth having an experienced attorney review your specific situation before a mistake becomes irreversible. We offer a free consultation to walk through your inherited IRA questions and how they fit into your broader estate plan.
Frequently Asked Questions
What is the 10-year rule for inherited IRAs?
The 10-year rule requires most non-spouse beneficiaries to fully withdraw all funds from an inherited IRA by December 31 of the tenth year after the original account owner's death. It replaced the old stretch IRA option that allowed distributions over a beneficiary's lifetime. There is flexibility in how withdrawals are timed within those ten years, but the account must reach zero by the deadline.
Who is exempt from the 10-year rule?
Eligible designated beneficiaries are exempt and can still stretch distributions over their own life expectancy. This group includes surviving spouses, minor children of the original account owner until they reach the age of majority, disabled or chronically ill individuals, and beneficiaries not more than ten years younger than the original owner.
Do I still have to take annual RMDs during the 10-year period?
In many cases, yes. If the original account owner died on or after their required beginning date for RMDs, the IRS's 2024 final regulations require beneficiaries subject to the 10-year rule to also take annual required minimum distributions in years one through nine, not just empty the account by year ten. Penalty relief was offered during the transition period, but that relief should not be relied on going forward.
How are surviving spouses treated differently?
Surviving spouses have more options than any other beneficiary. They can remain a beneficiary and stretch distributions over their own life expectancy, use eligible designated beneficiary treatment, or complete a spousal rollover that treats the inherited IRA as their own account, allowing them to delay distributions and name new beneficiaries.
How does New York tax inherited IRA distributions?
New York does not impose a separate state inheritance tax on retirement accounts, but ordinary New York state income tax applies to taxable distributions as they are withdrawn. Separately, the value of the IRA counts toward the deceased owner's estate for New York estate tax purposes, which has its own exemption and a cliff feature that can eliminate the exemption entirely if the estate exceeds it by more than 5%.
