Referral Before 2020, naming a trust as the beneficiary of an IRA was a well-established estate planning technique. Heirs could stretch the distributions over their lifetimes, growing the account over decades while taking small, tax-managed withdrawals each year. For parents who wanted control over how heirs received a large inheritance, it was an efficient combination: the IRA's tax deferral, extended over a lifetime, with the trust's distribution controls layered on top. The SECURE Act of 2019 largely ended that. The rules governing trusts as IRA beneficiaries are now significantly more comp
Before January 1, 2020, most non-spouse beneficiaries who inherited an IRA could take distributions over their own life expectancy — sometimes 30, 40, or 50 years depending on their age. This was called the "stretch IRA." A young heir inheriting a large IRA could spread the income tax liability over decades, keeping annual distributions small and manageable. The SECURE Act eliminated the stretch for most non-spouse beneficiaries. Under the new rules, most people who inherit an IRA must withdraw the entire balance within 10 years of the original owner's death. There is no requirement to take equal annual distributions — the heir can take whatever amount they choose each year — but the account must be empty by the end of year 10. The 2024 final RMD regulations added another layer: if the original IRA owner died after their Required Beginning Date (RBD) — the date they were required to start taking distributions, now age 73 — the heirs must take annual distributions in years 1 through 9 and fully empty the account by year 10. They cannot simply wait until year 10 to withdraw everything. The stretch IRA is largely gone for most heirs. The 10-year rule is now the standard for non-spouse beneficiaries. This changes the tax calculus for anyone who was planning to use a trust as an IRA beneficiary to extend distributions across multiple generations.
The SECURE Act created a category called Eligible Designated Beneficiaries (EDBs) who can still use a lifetime stretch. This is a narrow group: The surviving spouse of the account owner A minor child of the account owner (only until they reach the age of majority; the 10-year rule then kicks in) A disabled individual, as defined by IRS standards A chronically ill individual Any beneficiary who is not more than 10 years younger than the deceased account owner Everyone else — adult children, grandchildren, most siblings, most trusts — follows the 10-year rule.
When a trust is the beneficiary of an IRA, the trust must meet specific IRS requirements — called "see-through" or "look-through" requirements — for the individual beneficiaries of the trust to be treated as the IRA beneficiaries for distribution purposes. If the trust doesn't meet these requirements, the default rules apply, which can be even more compressed. But even with a properly drafted see-through trust, there is a significant tax problem: trusts reach the top 37% federal income tax bracket at approximately $15,650 of income in 2025. An individual, by contrast, doesn't reach 37% until income exceeds roughly $626,000. This means that if IRA distributions are retained inside a trust rather than distributed to individual beneficiaries, the tax bill can be devastating. An "accumulation trust" — one that retains distributions rather than passing them through — absorbs this compressed tax rate on every dollar held inside the trust. For a $500,000 IRA distributed over 10 years, keeping the distributions inside an accumulation trust instead of distributing them to an individual beneficiary could cost tens of thousands of dollars in excess taxes.
Beneficiary Type Rule Tax Treatment Surviving spouse Rollover to own IRA; Standard RMD rules; own life continues tax expectancy deferral Minor child (owner's) Lifetime stretch Individual tax rates; then until age of 10-year window majority, then 10-year rule Disabled/chronically Lifetime stretch Individual tax rates over ill lifetime Adult child / 10-year rule; annual Individual tax rates; 10-year grandchild RMDs if owner died window (individual) post-RBD Trust (accumulation) 10-year rule (if Up to 37% tax rate on income see-through); retained in trust retained income taxed in trust Trust (conduit) Distributes all RMDs Individual tax rates for each to individual beneficiary beneficiaries Charity Tax-exempt; no No tax — ideal recipient of income tax on IRA assets withdrawal Source: SECURE Act §401 (2019); IRS Final RMD Regulations (July 2024); Charles Schwab; Kitces.com — 10-Year Rule Analysis
A CPA and estate planning attorney working together can review your|IRA designations in the context of your overall estate plan and
SECURE Act §401 (2019); IRS Final RMD Regulations (July 2024);