The original ‘Inherited Stretch IRA’ has been eliminated. Now What Do You Do?

By Admin Prepare

October 20, 2021

The SECURE ACT (Setting Every Community Up for Retirement Enhancement Act) became law at the beginning of last year. The legislation was mainly intended to expand opportunities for people to increase their retirement savings, which obviously is a good thing. However, the act also included one big tax law change that will cost most inheritors additional taxes, and that was the elimination of the ‘Inherited Stretch IRA’. So, now what do you do?

The majority of money that is saved for retirement and eventually passed on to heirs is done in a pre-taxed basis. This means of course that money inherited from a traditional IRA, SEP IRA, 401k or 403b is fully taxable at ordinary income tax rates to the inheritor. Thus, many inheritors do proper estate planning to reduce the tax liability on inherited money.

One of the main estate planning moves here was to establish an Inherited Stretch IRA upon inheriting retirement account money. This allowed the inheritor to keep the money in a tax-deferred account and prevent the taxation on this money all at once. You were able to pay tax on the money as you withdrew it, or on a small required minimum distribution each year. For money inherited in 2019 or before, you are allowed to keep you inherited stretch IRA as it was grandfathered in. For any money inherited on Jan 1, 2020 and later, the inherited stretch IRA is not available as it was before.

The new law says that all inherited money in retirement accounts, including Roth IRAs, has to be liquidated by the end of the tenth year after inheriting the money. So that means the taxes owed on this money has to be paid within 10 years. You get flexibility within that 10 years to pay taxes as you wish; so you could pay it all the first year, wait until the tenth year, or any combination within the 10 years.

This new law will now require a lot of estate plans to be revised to come up the proper payout strategy and look at alternative ways to inherit money in order to save as much tax as possible. So, the key question is – ‘What Do You Do Now?’ Visit the Prepare Institute website ( to find a retirement course or class near you.

Content is for educational and informational purposes only. It is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation. You should contact your retirement and tax professional before utilizing any of the information in this article.