The SECURE Act dramatically changed how inherited retirement accounts are distributed. For many families, the old “stretch IRA” strategy disappeared and was replaced with what is commonly called the 10-year rule. When trusts are involved in estate planning, the rules become even more complex. Understanding these rules is critical to avoid unexpected tax consequences.
The SECURE Act and the 10-Year Rule
Before 2020, many beneficiaries could stretch distributions from an inherited IRA over their life expectancy. This allowed retirement assets to grow tax-deferred for decades.
The SECURE Act largely eliminated that strategy for most beneficiaries.
Today, most non-spouse beneficiaries must withdraw the entire inherited IRA within 10 years of the original account owner’s death. The account must be fully distributed by December 31 of the 10th year.
In some cases, annual required minimum distributions (RMDs) may also apply during years 1–9 if the original account holder had already begun taking RMDs before death.
The result: many families now face accelerated income taxes when inheriting retirement accounts.
How Trusts Affect the 10-Year Rule
Many estate plans name a trust as the beneficiary of an IRA instead of naming individuals directly. This is often done to provide:
- Asset protection
- Spendthrift protection
- Divorce protection
- Long-term management for beneficiaries
However, trusts must be carefully structured. Otherwise, they can create serious tax issues.
If a trust is named as the IRA beneficiary, it must qualify as a “see-through trust” to allow the IRS to look through the trust to the underlying beneficiaries.
If the trust does not meet the requirements, the IRA may be forced into an even faster distribution schedule, potentially causing large tax bills.
Even when a trust qualifies as a see-through trust, most beneficiaries are still subject to the 10-year distribution rule under the SECURE Act.
Conduit vs. Accumulation Trusts
Two common types of trusts are used in IRA planning:
Conduit Trusts
A conduit trust requires any IRA distributions received by the trust to be immediately passed to the beneficiary.
Advantages:
- Often simpler to qualify as a see-through trust
- Ensures the 10-year rule applies rather than an accelerated payout
Disadvantages:
- Distributions go directly to the beneficiary, reducing asset protection.
Accumulation Trusts
An accumulation trust allows the trustee to retain distributions inside the trust rather than paying them out immediately.
Advantages:
- Greater control and asset protection.
Disadvantages:
- More complicated IRS rules
- Trust income tax rates are much higher.
The Exception: Eligible Designated Beneficiaries
The SECURE Act created a category called Eligible Designated Beneficiaries (EDBs) who are still allowed to stretch IRA distributions over their life expectancy.
These include:
- Surviving spouses
- Minor children of the account owner (until age 21)
- Disabled individuals
- Chronically ill individuals
- Individuals not more than 10 years younger than the account owner
For these beneficiaries, the old life-expectancy stretch rules can still apply.
Special Needs Trusts and the Stretch Exception
Special Needs Trusts play a particularly important role in IRA planning when the beneficiary is disabled.
A properly structured Special Needs Trust for a disabled beneficiary may still qualify for life expectancy distributions rather than the 10-year rule.
This means that instead of emptying the IRA within 10 years, the distributions can be stretched over the disabled beneficiary’s expected lifetime.
This strategy can provide several key benefits:
- Long-term tax deferral
- Preservation of SSI and Medicaid eligibility
- Asset protection through trustee management
- Financial security for a vulnerable beneficiary
However, the trust must meet specific IRS requirements, including ensuring the disabled beneficiary is the sole lifetime beneficiary.
If the trust is not drafted properly, the IRS may apply the 10-year rule instead, eliminating the stretch opportunity.
Why IRA Trust Planning Matters
Retirement accounts are often among the largest assets in an estate. Poor planning can cause those assets to be depleted quickly due to income taxes.
Proper trust planning can:
- Protect beneficiaries
- Coordinate retirement account distributions
- Reduce tax acceleration
- Provide long-term management of inherited wealth
For families with disabled beneficiaries, a properly structured Special Needs Trust may still preserve the life-expectancy stretch, making it one of the most valuable planning tools remaining under the SECURE Act.
The Bottom Line
The SECURE Act’s 10-year rule significantly changed how inherited IRAs are distributed. While many beneficiaries must withdraw retirement funds within 10 years, careful trust planning can still provide important protections.
In certain situations—especially for disabled beneficiaries using Special Needs Trusts—it may still be possible to extend distributions over the beneficiary’s lifetime rather than being limited to the 10-year rule.
Because these rules are complex and the consequences of mistakes can be costly, families should review their estate plans regularly and ensure their IRA beneficiary designations work together with their trust planning.
