A client sat across from me a while back, proud of a plan he'd built over decades. He'd done everything right — named his daughter as the beneficiary of his IRA, figured she'd stretch those distributions out over her lifetime, and let the account keep growing tax-deferred for years. It was a smart plan. The problem was that the law had changed underneath him, and the plan he was so proud of no longer worked the way he thought.
That's the SECURE Act. If you have an IRA, a 401(k), or any retirement account you intend to pass on, it changed the rules — and a lot of plans written before it are now quietly out of date.
What Changed: The End of the "Stretch"
For years, a non-spouse beneficiary who inherited a retirement account could "stretch" the required withdrawals over their own life expectancy. A 40-year-old inheriting Dad's IRA could take small distributions for decades, letting most of the account keep growing tax-deferred. It was one of the most powerful wealth-transfer tools out there.
The SECURE Act, which took effect in 2020, largely ended that for most heirs. Now, for most non-spouse beneficiaries, the entire inherited account generally has to be emptied within 10 years of the original owner's death. No more 40-year stretch. The money — and the tax bill that comes with it — gets compressed into a single decade.
For a working-age heir already in their peak earning years, those withdrawals can land right on top of their highest-taxed income.
Who Still Gets a Break: Eligible Designated Beneficiaries
Not everyone is stuck with the 10-year rule. The law carves out a group called eligible designated beneficiaries who can still stretch distributions. They include:
- A surviving spouse
- A minor child of the account owner (but only until they reach the age of majority — after that, the 10-year clock generally starts)
- A beneficiary who is disabled or chronically ill
- A beneficiary who is not more than 10 years younger than the account owner
Everyone else — your adult kids, most of the time — falls under the 10-year rule.
The Annual Withdrawal Wrinkle
Here's a detail that tripped up a lot of families. For several years after the SECURE Act passed, it wasn't clear whether heirs subject to the 10-year rule also had to take an annual required minimum distribution along the way, or whether they could simply wait and empty the account in year 10.
The IRS issued final regulations on July 18, 2024. The upshot: if the original owner had already started taking required minimum distributions before death, the beneficiary generally must take annual distributions during the 10-year window — and still empty the account by the end of year 10. The IRS waived penalties for missed distributions in the 2021–2024 transition years, effectively making 2025 the first year the annual-distribution requirement is enforced.
SECURE 2.0 — A Few More Moving Pieces
Congress wasn't done. SECURE 2.0, passed at the end of 2022, made additional changes worth knowing:
- The age at which you must start taking required minimum distributions from your own accounts moved to 73 (for those reaching 72 after 2022), and is scheduled to rise to 75 in 2033.
- The penalty for a missed required distribution dropped from 50% to 25% — and as low as 10% if you correct it promptly.
The Trap of Naming a Trust as Beneficiary
A lot of well-built estate plans name a trust as the beneficiary of a retirement account — often for very good reasons, like protecting an heir who isn't great with money or shielding the inheritance from a child's divorce or creditors. The SECURE Act made that more complicated, not impossible.
If a trust is drafted as a "see-through" or "conduit" trust, it can still qualify the underlying beneficiary for favorable treatment. But if the trust language wasn't written with the new rules in mind, the account can be forced out on a much faster, more heavily taxed schedule than anyone intended. I've reviewed trusts drafted before 2020 that, under today's law, would do the opposite of what the family wanted.
This is exactly the kind of provision that needs a fresh set of eyes. If your plan names a trust to receive retirement assets, it's worth confirming the language still does what you think it does — something we handle as part of ongoing trust administration and plan reviews.
What This Means For You
If your retirement accounts are a big part of what you'll leave behind — and for most Central Illinois families I work with, they are — the SECURE Act is a reason to dust off your plan. The right move depends on your family: sometimes it's updating a beneficiary designation, sometimes it's revising trust language, and sometimes it's rethinking whether a Roth conversion makes sense during your lifetime to spare your heirs the tax squeeze.
These aren't decisions to guess at. Let's sit down, look at your accounts and your beneficiary forms together, and make sure the plan you built still works the way you intended.