The Stretch IRA Is Not Dead For Everyone

Eligible Designated Beneficiary

What exactly does it mean to be an “eligible designated beneficiary” of a Traditional IRA?

  • Here is the short answer - an eligible designated beneficiary is exempt from the now-infamous stretch IRA killer known as the 10-year distribution rule.
  • For IRA owners dying in or after 2020, the 10-year distribution rule kills the lifetime distribution stretch option and forces individuals to take 100% of a decedent’s Traditional IRA balance no later than the end of the 10th year following the year of the IRA owner’s death.

Although our focus is upon Traditional IRAs in this blog, many of the same rules apply to qualified plan accounts and Roth IRAs as well. Eligible designated beneficiaries include:

The surviving spouse

Minor children of the original IRS owner

Chronically ill and disabled individuals

Individual less than 10 years younger than the deceased IRA owner

Review each of the following for vital information. Assume the Traditional IRA owner dies on or after January 1, 2020.

  1. A surviving spouse as sole beneficiary is an eligible designated beneficiary. He or she has the most choice in taking post-death Traditional IRA required minimum distributions.
    At the death of the original Traditional IRA owner, generally whether death happens before, on or after the original owner’s required beginning date, the surviving spouse can:

    • Take distributions as the beneficiary of the decedent spouse’s IRA, or
    • Roll the decedent spouse’s IRA into his or her own IRA. The surviving spouse then becomes the new owner of the IRA and can name new beneficiaries.
    • Generally, take required minimum distributions over his or her life expectancy or the decedent’s life expectancy at death.

    Key Takeaway - No other beneficiary has the choice of becoming the owner of the decedent spouse’s IRA.

  2. Chronically ill, disabled, or “less than 10 years younger” individuals are eligible designated beneficiaries and may take required minimum distributions over their own life expectancy, but may not roll the decedent’s Traditional IRA into their own IRA. An example of a “less than 10 years younger” beneficiary is a sibling or friend 9 years younger than the decedent IRA owner. Special rules apply to minors.
    At the death of the original owner, whether death happens before, on or after the owner’s required beginning date, an individual in this group of beneficiaries must generally take required minimum distributions at least as rapidly as over their life expectancy (measured as of the decedent’s year of death).
    By exception, minor children of the original owner must take required minimum distributions based upon the minor’s life expectancy measured in the year of decedent’s death but only until a triggering event occurs.

    • The triggering event is the later of the minor reaching the age of majority or age 26 if in school.

    100% of the remaining IRA balance must be distributed no later than the end of the 10th year following the year of the triggering event.

  3. All other individuals (natural persons) are generally subject to the 10-year rule. All other natural persons must take 100% of the IRA balance no later than the end of 10th year following the year of the original IRA owner’s death. Such beneficiaries are not required to take interim distributions during the 10 years.
    Key Takeaway - No more stretch IRAs for this group of beneficiaries.

Here’s a question – what rules apply if the Traditional IRA owner died before January 1, 2020? Great news - The Stretch IRA we knew and loved is grandfathered in under the old rules. Specifically, Stretch IRAs that commenced before January 1, 2020, are generally grandfathered under the previous rules and are not subject to the 10-year rule. Under the previous rules, required minimum distributions for designated IRA beneficiaries were generally based upon lifetime distributions.

The Stretch IRA is dead for many beneficiaries but certainly not for all. Be sure you are aware of the grandfathered and eligible beneficiary opportunities that could help your client stretch his or her IRA over a lifetime despite the 10-year distribution rule.

Consult your tax professional before discussing these issues with clients.


The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide tax, legal or financial advice to clients. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this blog.