Stretch IRA

A stretch IRA was not a type of account. It was a strategy — and a piece of industry shorthand — for using inherited retirement money as slowly as the law allowed. A beneficiary would take only the required minimum each year, calculated on their own life expectancy, leaving the rest to grow tax-deferred for as long as possible. A 35-year-old inheriting a large traditional IRA could spread withdrawals across roughly half a century, which turned a single inheritance into decades of sheltered growth and kept each year's taxable distribution small.

It is worth being clear about the name, because it appears in older articles, older estate plans, and a good deal of sales material as though it were a legal category. It never was. The tax code has no "stretch IRA"; it has the life expectancy rule, the 5-year rule — the beneficiary payout version, which is a different mechanism from the Roth holding-period rule that shares the name — and now the 10-year rule. The Congressional Research Service titled its own report on the subject using stretch in scare quotes for exactly this reason. Nor was the technique ever IRA-specific despite the name — the same mechanics applied to inherited employer plan balances.

What ended it, and precisely for whom. Section 401 of the SECURE Act, signed in December 2019, added section 401(a)(9)(H) to the Internal Revenue Code and replaced the life expectancy payout with a ten-year deadline for most beneficiaries. It applies to deaths after 2019. That single detail is the one most often stated too bluntly: "the stretch IRA is gone" is not true as a general statement, because the trigger is the original owner's date of death, not the beneficiary's conduct or the current calendar year. A beneficiary who inherited from someone who died in 2017 and has been taking life-expectancy distributions ever since is doing it correctly today and will keep doing it correctly for decades. Nothing in the SECURE Act reached backward.

The two survivals. First, the grandfather: pre-2020 deaths continue under the old rules for the original beneficiary. Second, and more importantly going forward, eligible designated beneficiaries — a surviving spouse, a child of the owner until majority, a disabled or chronically ill individual, and anyone not more than ten years younger than the owner — were deliberately carved out of the ten-year deadline and may still use the life expectancy rule. So the strategy did not so much disappear as narrow to a defined list of people Congress decided should keep it.

Where a grandfathered stretch stops. It stops at the first beneficiary's death. When a beneficiary who has been stretching a pre-2020 inheritance dies, their own successor beneficiary is pulled into the 10-year rule, because that death occurred after 2019. The same is true of an eligible designated beneficiary's successor. A stretch, in other words, was never heritable; it was a payout schedule attached to one person.

What replaced the planning. The strategy's disappearance is why inherited pre-tax accounts now get attention they used not to need. When a large traditional balance must clear in ten years, the beneficiary's own earning years become the constraint — a 45-year-old at peak salary absorbing a compressed stream of ordinary income pays a very different rate than a retired 65-year-old would. The responses that came into common use afterward tend to sit on the owner's side of the ledger rather than the beneficiary's: Roth conversions during the owner's lifetime, so what passes is tax-free; naming charities for pre-tax dollars and other assets to individuals; and, less often than sales material suggests, trust and insurance structures whose costs have to be weighed against the deferral they buy.

How it used to work, in the past tense: a non-spouse beneficiary would title the account as an inherited IRA, look up a single life expectancy factor for their age in the year after the death, divide the balance by it to get the first year's required minimum distribution, and then reduce that factor by one each following year. Because the divisor stayed large for a young beneficiary, the required amount stayed small, and the balance kept compounding.

A hypothetical example of the difference the date of death makes. Two siblings each inherit an identical $500,000 traditional IRA from a parent. Dana's parent died in 2018, so Dana is grandfathered and continues taking life-expectancy distributions — early withdrawals in the low tens of thousands on a balance that keeps growing. Marcus's parent died in 2022, so the 10-year rule applies to him. Ignoring growth, emptying the account evenly means $500,000 ÷ 10 = $50,000 of additional ordinary income every year for a decade. If Marcus earns $130,000, that $50,000 sits on top of his salary at his marginal rate; Dana's much smaller annual amount does not.

The comparison also shows why the change was worth so much revenue to the Treasury. Nothing about the total amount of tax owed changed — the same dollars are taxable either way. What changed is when, and therefore at what rate and after how many years of sheltered compounding.

Pros of the strategy, while it was broadly available

• Extended tax-deferred growth for decades after the original owner's death.
• Kept each year's taxable distribution small, which usually meant a lower marginal rate on every dollar withdrawn.
• Gave a young beneficiary a long, flexible runway rather than a deadline.

Cons, and why it is mostly gone

• It is unavailable for most beneficiaries of anyone who died after 2019, so older plans and older advice built around it can be actively misleading.
• It was never heritable — a successor beneficiary inheriting after 2019 falls under the 10-year rule regardless.
• Even where available, it required a beneficiary to take a small annual distribution every year without fail; a missed year carried an excise tax on the shortfall.
• Because the name sounds like a product, it invited the impression that something could be bought or set up to preserve it, which was never the case.