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On December 20, 2019, President Trump signed into law the “Secure Act,” which eliminated the benefits of “Stretch IRAs” for non-spouse beneficiaries of IRAs, 401Ks, Thrift Savings Plans, and other qualified retirement plans.

Today, rather than being able to stretch annual required minimum distributions (RMDs) over their projected lifespans, nonspouse beneficiaries of inherited IRAs will be required to withdraw the entire amount of an inherited IRA within ten years. There are no specific RMD requirements within the ten-year period, but the entire balance must be distributed by the last day of the period.

This is bad news for beneficiaries in their peak earning years, when their marginal tax rates are likely to be at their highest. Limiting the period in which a beneficiary must take his or her distributions from an inherited plan means potentially magnifying the tax burden on those distributions.

On the plus side, the Secure Act increased the age at which an IRA owner/beneficiary must begin taking RMDs from the previous age 70-1/2 to age 72. Folks who turn 72 years old in 2022 will not need to make their first withdrawal until April 1, 2023. They’ll then have to take another RMD by December 31, and by every December 31 thereafter.

UPDATE: The “Cares Act” of 2020, enacted to ease the financial burdens of the Chinese coronavirus pandemic, allowed all retirees who would otherwise be required to take an RMD for 2020, plus all beneficiaries of inherited IRAs, to skip the RMD just for that year. The one-time RMD exemption has not yet been extended for tax year 2021.

[Updated: December 15, 2021]

Philip DeMuth writes in the Wall Street Journal (behind its paywall) that the “SECURE Act” now under consideration in Congress “would upend 20 years of retirement planning and stick it to the middle class.” It’s good reading, and explains how the proposed law’s authors believe that owner/beneficiaries of inherited IRAs (and 401Ks and Thrift Savings Plans) should no longer be permitted to withdraw plan funds over their actuarial lifetimes, but instead be forced to withdraw them within 10 years of the original owner/beneficiary’s death.

This is not a good deal, and would make inherited IRAs subject to higher taxes sooner. Folks hoping to keep inherited IRAs as nest eggs for their own retirements would instead be forced to withdraw the assets and pay taxes while still young.

DeMuth’s article is well-done and accurate in detail. For those without a WSJ subscription, a recent article in Barron’s, titled The Stretch IRA Is About To Snap Under the Secure Act, provides a broad summary.