Congress Changed Rules for Inherited Retirement Accounts

Congress changed the rules for when beneficiaries must take money from inherited IRAs, 401(k)s, and other retirement accounts. The changes affect how quickly heirs must withdraw funds and pay taxes on those withdrawals.

The most important factor is when the original account owner died. Most major changes apply to deaths in 2020 or later. For those deaths, many beneficiaries must empty the account within 10 years instead of stretching distributions over their own life expectancy.

Deaths before 2020 may still follow older rules that allowed longer payout periods. The SECURE Act, signed into law by President Donald Trump, took effect in 2020. 0 Act, signed into law by former President Joe Biden, added further changes with some provisions effective immediately and others phased in later.

Beneficiary Relationship Rules also differ by account type.

Traditional IRAs require taxable distributions as ordinary income. Roth IRAs follow the same 10-year distribution rule for most heirs, though qualified distributions remain tax-free. Qualified employer plans such as 401(k)s may offer fewer options than the tax code allows.

Plans can require faster distributions than federal rules permit but cannot allow slower ones. Beneficiary status determines payout flexibility. Eligible designated beneficiaries include surviving spouses, minor children, disabled individuals, chronically ill individuals, and people no more than 10 years younger than the original owner.

These beneficiaries may qualify for life-expectancy payouts rather than the standard 10-year rule. Adult children generally fall under the 10-year rule and must fully distribute the account by the end of the tenth year after death. Non-designated beneficiaries such as estates and charities face five-year or life-expectancy rules depending on whether the owner had reached the required beginning date before death.