Most of what you've read online about IRS problems is wrong, or at least misleading. I'm Darrin Mish. I practice tax law in Tampa and I've been doing this for 32 years. Here's what's actually true.
I'm Darrin Mish. Tampa tax attorney, 32 years in, more than $100 million in IRS debt resolved. That's my resolution practice. What follows is the other side of the desk – the planning moves that keep you from ever needing it.
You spent decades building your IRA. Tax-deferred contributions, compound growth, the whole disciplined approach. Then Congress passed the SECURE Act in 2019 and fundamentally changed what happens after you die. The stretch IRA – once a cornerstone of estate planning for affluent families – effectively disappeared for most beneficiaries.
Understanding what changed matters if you have substantial retirement accounts. The old rules let your children or grandchildren stretch distributions over their lifetimes, potentially deferring taxes for 30, 40, even 50 years. The new rules? Most beneficiaries must drain the account in ten years.
How the Stretch IRA Worked Before 2020
The stretch IRA wasn't a special account type. It was a distribution strategy based on how the IRS treated inherited retirement accounts before January 1, 2020.
When you inherited a traditional IRA or 401(k), you could take required minimum distributions (RMDs) based on your own life expectancy. A 35-year-old beneficiary had roughly 48 years to drain the account under the IRS Single Life Expectancy Table. Each year, you withdrew only a small percentage. The bulk of the money stayed invested, growing tax-deferred.
The Tax Advantages Went Beyond Deferral
Younger beneficiaries pulled money out slowly. Their taxable income from the inherited IRA stayed manageable, often keeping them in lower tax brackets. Meanwhile, the account balance frequently grew faster than the withdrawal rate during strong market years.
A 30-year-old who inherited a $500,000 IRA might withdraw $9,000 the first year – just 1.8% based on a 54.3-year life expectancy factor. That withdrawal barely moved the needle on their tax return. The remaining $491,000 continued compounding.
Business owners used this extensively. Build wealth in retirement accounts during high-earning years, pass the accounts to children or grandchildren, let the stretch IRA concept multiply the tax-deferred benefit across generations.
What the SECURE Act Changed in 2020
The Setting Every Community Up for Retirement Enhancement Act ended the stretch IRA for most non-spouse beneficiaries. If the original account owner died after December 31, 2019, new rules apply.
Now most beneficiaries fall under the 10-Year Rule. The inherited IRA must be completely distributed by December 31 of the tenth year following the year of death. No annual RMDs during those ten years – just a hard deadline to empty the account.
Who Still Qualifies for the Stretch
Congress carved out exceptions for what they call "Eligible Designated Beneficiaries." These five categories can still use life expectancy distributions:
- Surviving spouses (who have additional options)
- Minor children of the deceased (until they reach majority, then the 10-year rule kicks in)
- Disabled individuals meeting strict IRS criteria
- Chronically ill individuals with specific medical certifications
- Beneficiaries less than 10 years younger than the deceased
Everyone else gets the ten-year clock. Adult children, grandchildren, nieces, nephews, friends – they're all subject to the accelerated timeline. The IRS 10-year rule for inherited IRAs fundamentally altered estate planning assumptions.
The Tax Consequences Hit Harder Than You Think
The 10-year rule compresses decades of distributions into a single decade. For many beneficiaries, that decade coincides with their peak earning years.
Your 45-year-old daughter inherits your $800,000 IRA. She's a successful professional earning $180,000 annually. Under the old stretch IRA rules, she might have withdrawn $17,000 the first year based on her 38.8-year life expectancy. Added to her salary, that's manageable tax-wise.
| Distribution Approach | Annual Withdrawal | Federal Tax Bracket Impact | Tax Deferral Period |
|---|---|---|---|
| Old Stretch IRA | $17,000 (Year 1) | Minimal bracket creep | 38+ years |
| 10-Year Rule (even split) | $80,000 | Pushes into higher brackets | 10 years maximum |
| 10-Year Rule (year 10 lump) | $800,000+ | Potentially 37% federal | 10 years maximum |
Under the 10-year rule, she must withdraw everything by year ten. If she waits until the deadline, she's adding $800,000-plus (with growth) to a single year's income. That's a tax disaster. If she spreads it evenly, that's $80,000 annually on top of her salary – pushing significant income into the 32% or 35% federal brackets.
State Taxes Compound the Problem
California, New York, New Jersey, and other high-tax states apply their own income tax to IRA distributions. A beneficiary in California's top bracket faces 13.3% state tax plus federal rates. The stretch IRA used to minimize this annual hit. The 10-year rule makes it unavoidable.
Business owners who built seven-figure IRAs often discover their heirs will lose 40% to 50% of the account value to combined federal and state taxes. That's not a wealth transfer strategy – that's wealth destruction.
The RMD Confusion Congress Created
Here's where it gets worse. The SECURE Act language was ambiguous about whether beneficiaries subject to the 10-year rule must also take annual RMDs during those ten years.
The IRS initially suggested no annual RMDs were required – just empty the account by year ten. Then in 2022, the IRS issued proposed regulations requiring annual RMDs if the original owner had already begun taking their own RMDs before death. Many beneficiaries who skipped distributions in 2021 and 2022 suddenly faced potential penalties.
The IRS has delayed enforcement while finalizing regulations, but the underlying issue remains. Current inherited IRA rules exist in regulatory limbo for certain situations. That's unacceptable for planning purposes, but it's where we stand in 2026.
Planning Requires Assumptions About Unfinished Rules
You can't wait for perfect clarity. If you die after your required beginning date (currently age 73 for most people), your non-eligible designated beneficiaries likely face both annual RMDs and the 10-year deadline. That's the conservative planning assumption based on proposed regulations.
If you die before your required beginning date, beneficiaries probably have full flexibility to time distributions within the ten-year window. But "probably" isn't a word you want in estate planning.
What Business Owners Should Do Instead
The stretch IRA is gone, but tax-efficient wealth transfer isn't impossible. You need different tools.
Roth conversions become significantly more valuable. Convert traditional IRA money to Roth IRA during your own moderate-income years. Pay the tax at your rates. Beneficiaries still face the 10-year rule, but Roth distributions come out tax-free. No bracket problems, no state tax hit.
A systematic conversion strategy over 10 to 15 years before retirement can shift $500,000 or more from traditional to Roth. Yes, you pay tax. But you pay it at known rates, possibly 24% federal, while your beneficiary avoids paying at unknown future rates that might hit 35% or 37%.
Life Insurance Replaces Tax Deferral With Tax Elimination
The old stretch IRA strategy relied on time. Life insurance creates instant, tax-free wealth.
Take RMDs you don't need and fund a life insurance policy. The death benefit passes to beneficiaries income-tax-free. No 10-year rule, no brackets, no forced distributions. A $1 million policy delivers $1 million. The insurance industry has been remarkably effective at lobbying Congress to keep this benefit intact while retirement accounts get hammered.
For business owners with estate tax exposure, life insurance in an irrevocable life insurance trust (ILIT) removes the proceeds from your taxable estate entirely. That's estate tax elimination and income tax elimination in one structure.
Trusts as IRA Beneficiaries Changed Too
Some advisors recommended naming trusts as IRA beneficiaries to control distributions and protect assets. The stretch IRA made this workable because distributions could span decades.
The 10-year rule creates friction. A properly drafted "conduit trust" can still qualify for the 10-year rule rather than the even worse "five-year rule" that applies to non-designated beneficiaries. But the trust must immediately distribute all IRA withdrawals to beneficiaries – you lose asset protection benefits.
"Accumulation trusts" can hold the money but face compressed taxation. Trusts hit the top 37% federal bracket at just $15,200 of taxable income in 2026. If the trust keeps the IRA distributions rather than passing them through, the tax hit is brutal.
See-Through Trust Provisions Need Updating
Older estate plans often include specific IRA stretch provisions that no longer work under current law. If your trust documents reference life expectancy distributions or assume multi-decade payout periods, they're outdated.
Business owners with trusts as IRA beneficiaries should have those documents reviewed against post-SECURE Act rules. What worked in 2018 creates tax problems in 2026.
Charitable Strategies Gained Relative Value
Qualified charitable distributions (QCDs) let you send up to $105,000 annually (indexed for inflation) directly from your IRA to charity after age 70½. The distribution satisfies your RMD but doesn't count as taxable income.
If you were planning to leave IRA assets to charity anyway, do it during life through QCDs rather than at death. You get the tax benefit now. The charitable deduction limitation rules don't apply to QCDs – they simply exclude the distribution from income.
For substantial charitable intent, qualified charitable remainder trusts (CRTs) can receive IRA distributions, provide income to beneficiaries for years, and ultimately benefit charity. The 10-year rule applies to the CRT as beneficiary, but the trust structure provides more control than outright distributions to individuals.
The Planning Process Starts With Projection
You can't fix this with a single tactic. You need coordinated planning across multiple years.
Calculate your current traditional IRA and 401(k) balances. Project growth to your life expectancy using conservative assumptions. That's what your beneficiaries inherit.
Model the tax hit under the 10-year rule. Assume your beneficiaries' income during their 40s and 50s. Add IRA distributions. Calculate federal and state tax at those combined income levels. The number is usually shocking.
Compare alternatives. How much tax do you pay on Roth conversions over the next decade? What's the after-tax difference between leaving a traditional IRA versus converting it? What does permanent life insurance cost, and what's the tax-free benefit?
Business owners comfortable with this analysis can run the numbers themselves. Most benefit from working with advisors who model these scenarios regularly. The planning process at firms like Taxt starts with projections specific to your situation, not generic rules of thumb.
Required Minimum Distributions Still Apply to You
The stretch IRA changes affect your beneficiaries. Your own RMDs follow different rules that haven't changed as dramatically.
You must begin RMDs by April 1 of the year following the year you turn 73 (for those born in 1951 through 1959). The SECURE 2.0 Act raised this from 72, and it increases to 75 for those born in 1960 or later.
Your RMD percentage starts around 3.77% at age 73 and increases each year based on the Uniform Lifetime Table. These distributions are taxable income. You can't avoid them by claiming you don't need the money.
Qualified Longevity Annuity Contracts Provide Limited Shelter
QLACs let you move up to $200,000 (as of 2026) from your IRA into a deferred annuity that doesn't begin payments until age 85. That amount doesn't count toward your RMD calculation, reducing the annual distribution requirement.
This is niche planning. The $200,000 limit makes it irrelevant for large IRAs. But for someone trying to reduce taxable income in their 70s while preserving longevity insurance, it's available.
Don't Ignore Roth IRA Special Treatment
Roth IRAs don't require RMDs during your lifetime. That's a major advantage over traditional IRAs beyond the tax-free growth.
Beneficiaries who inherit Roth IRAs still face the 10-year rule, but all distributions remain tax-free. A $500,000 Roth IRA produces the same $500,000 after-tax to your beneficiary whether they withdraw it in year one or year ten. No bracket management needed.
This makes Roth conversions particularly valuable if you plan to leave money to heirs rather than spend it yourself. Convert while you're in the 24% or 32% bracket. Your beneficiary gets tax-free distributions even if they're in the 35% or 37% bracket when they inherit.
Business Succession Planning Intersects Here
If you own a closely held business and use qualified retirement plans, the stretch IRA changes affect your exit strategy.
Many business owners accumulate significant balances in solo 401(k)s or SEP IRAs. When you sell your business, you might roll those into IRAs. If that represents $2 million or $3 million, your heirs face massive compressed taxation under the 10-year rule.
Planning the business sale to minimize retirement account balances can make sense. Take income during the sale year when you have offsetting deductions or losses. Use the proceeds to fund Roth conversions or life insurance while you're still working and can manage the tax cost.
Waiting until after you've retired and have no other income makes Roth conversions feel cheaper on an annual basis, but you lose the planning flexibility that business income provides.
The Stretch IRA Isn't Coming Back
Every few years, Congress considers legislation to restore some version of the stretch IRA. The proposals never gain traction.
The SECURE Act raised an estimated $15.7 billion in revenue over ten years by eliminating the stretch IRA. Congress needs that money. They're not giving it back.
Effective planning in 2026 means accepting that the old rules are gone permanently. Hoping for legislative changes isn't a strategy. Adapting your wealth transfer approach to current law is.
Some of the alternative approaches discussed by advisors work better than others depending on your specific situation. Asset size, beneficiary income levels, state tax exposure, charitable intent, and business ownership all factor into which tactics provide the most tax efficiency.
The stretch IRA disappeared, but the need for tax-efficient wealth transfer didn't. Converting to Roth, using life insurance, and timing distributions strategically all help, but they require analysis specific to your situation. Taxt builds multi-year tax plans that reduce what you pay now and what your beneficiaries pay later – backed by a money-back guarantee if we don't find savings.
