The SECURE Act upended inherited IRA planning and now, the clock is ticking. As we enter the critical second half of the 10-year distribution window for many post-2019 beneficiaries, financial advisors face a narrowing opportunity to help clients avoid costly tax mistakes. With new rules, evolving RMD requirements and the potential for significant tax spikes in years 9 and 10, waiting is no longer an option.
What Changed and Why Does it Matter?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 fundamentally changed retirement planning by eliminating the “stretch” provision for most inherited IRAs. Under the new 10-year rule, most non-spouse beneficiaries must fully distribute inherited IRA assets within 10 years of the original owner’s death. And starting in 2025, annual required minimum distributions are now required for beneficiaries of inherited IRAs from original owners who had already begun taking RMDs, adding additional complexity to the distribution timeline.
As we enter years 5-10 of this new landscape, the urgency for strategic planning has intensified. Many clients who inherited IRAs in 2020 are now facing the reality that half of their 10-year window has passed. This issue will only become more prevalent as the baby boomer generation continues to pass wealth to their heirs, making SECURE Act planning an increasingly critical component of comprehensive financial planning. Without proper post-mortem planning, beneficiaries risk significant tax consequences from being forced into higher tax brackets during the final distribution years.
To address this growing challenge, we have developed a five-step process to systematically analyze and optimize SECURE Act distributions for our clients, which we outline below. To be clear, this article does not address the RMD considerations that could also be required of these beneficiaries, only the ten year distributions that are required.
1. Client Identification and Assessment
Every January, we pull a comprehensive list of all clients subject to the SECURE Act’s 10-year rule for inherited IRAs. The list provides information regarding the decedent, the date of death, the date at which the account balance must be fully drawn down, the current year RMD based on the December 31 account balance of the previous year, and the current account balance. This helps us to prioritize planning urgency (i.e., generally the higher the inherited IRA balance, the more critical the planning will be).
PRO TIP: Creating a report of all clients subject to the SECURE Act 10-year rule for inherited IRAs will help ensure no clients fall through the cracks!
2. Segmentation of Clients by Account Balance Threshold
Once we have the comprehensive list of clients with inherited IRAs subject to the 10-year rule, they are segmented using a $500,000 inherited IRA balance threshold. This segmentation allows us to separate clients with smaller balances ($500k) who will require more advanced long-term planning techniques. This helps us organize clients based on each situation’s complexity and tax impact potential.
PRO TIP: As a note, the $500,000 threshold serves as a starting point. Each client’s specific circumstances, tax situation, and financial goals should ultimately be reviewed to determine the most appropriate analytical approach. For example, a client may have an inherited IRA balance under $500,000, but you know their income will fluctuate significantly over the 10-year period. In this case, performing an advanced distribution analysis could still make sense, as an even distribution would likely not be the most tax-efficient strategy.
3. Basic Analysis for Balances Under $500,000
For clients with inherited IRA balances below $500,000, we perform a streamlined analysis taking current account values and assuming a 7% annual rate of return through year 10. We then calculate the even distribution amount that would need to be taken each year to reduce the inherited IRA account balance to zero by the end of the 10th year. This provides a simple withdrawal schedule that helps the client spread out the tax burden over multiple years to avoid year-10 tax shock. There are several free distribution calculators available online that can help with this analysis.
Having said that, if the account balance is under $500,000, but there are extenuating circumstances, e.g., the client is going to retire in two years and dip into a lower tax bracket, we will adjust the even distribution to account for projected variations in income and tax bracket.
PRO TIP: Use distribution calculators like those from Vanguard, Schwab or Bankrate to quickly project equal annual withdrawals. Pair this with a basic tax impact estimate to help clients visualize the difference between spreading income vs. delaying distributions.
4. Advanced Analysis for Balances Above $500,000
For clients with balances exceeding $500,000, we use sophisticated distribution software (Income Solver or Income Lab and Holistiplan) to model optimal distribution strategies. This advanced analysis requires several inputs such as current investable assets, current and projected income and expenses, annual growth and inflation rates and tax rate assumptions to optimize distributions and tax efficiency. Generally, if current income is lower, we may now recommend larger distributions to fill the lower tax brackets. If income is expected to decrease in future years, we will likely plan for smaller distributions now with larger distributions to occur when income is lower later into the 10-year period. Additionally, the potentially changing tax landscape and future tax policy implications should be considered when developing a distribution plan.
For example, we ran an advanced 10-year distribution analysis for our client who inherited a $3 million Traditional IRA from his father in 2025. Based on his situation, our analysis showed that if he waited five years to take larger distributions ($300,000 a year) once he retired and had a lower income, he would save an additional ~$130,000 in taxes compared to if he took even distributions ($150,000 a year) over the 10-year period. Looked at another way, our projections showed that he would save ~$270,000 in taxes by following the five-year distribution strategy compared to if he waited until the final year to take out the full distribution!
PRO TIP: It is important to remember that while traditional inherited IRAs require careful tax planning to minimize the impact of taxable distributions, inherited Roth IRAs present different considerations. Although inherited Roth IRAs do not have RMDs, beneficiaries might consider taking partial distributions over the 10-year period to hedge against market timing risk, rather than concentrating all distributions in the final year.
5. Client Communication & Strategy Implementation
Once the analysis is complete, we send an email to the client explaining the recommended distribution strategy, potential tax implications, and timing considerations. We will also offer a call to discuss the analysis further if needed. Upon client approval, we will implement the planning recommendations and revisit the analysis at least annually to confirm the strategy remains optimal based on the client’s situation and any possible changes in tax laws or the client’s projected income for the upcoming years.
PRO TIP: Don’t assume the email is enough! Follow up with a short video or calendar link. Personalizing communication increases client buy-in and provides an opportunity to reinforce your value as a proactive planner.
The SECURE Act’s 10-year rule demands more than one-off conversations, it calls for an ongoing, methodical approach. By segmenting clients, modeling outcomes, and adjusting strategies as income and tax laws evolve, we can help beneficiaries avoid the pain of last-minute, high-bracket distributions. As we cross the halfway mark of this new planning era, now is the time to double down on years 5–10. Advisors who lead this charge will not only mitigate tax exposure but also deepen client trust in an area where clarity and proactive guidance are sorely needed.
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