The Stretch IRA is Not Dead - Yet | Lord Abbett
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Retirement Perspectives

There may be exceptions to the near elimination of the “stretch IRA.”

There are still several unanswered questions about post-death RMDs due to the SECURE Act (almost) eliminating the stretch IRA.  We continue to watch the regulatory scene and are following up certain items such as the 10-year payout rule, how minimum distributions will work for Eligible Designated Beneficiaries, or when there is more than one named beneficiary, and, importantly, how the Act affects trust rules when a beneficiary is a trust. In this article, we provide our perspective, notwithstanding these pending issues.

The Setting Every Community up for Retirement Enhancement (SECURE) Act of 2019 eliminated the Stretch IRA for many beneficiaries who inherit an IRA, replacing it with a less friendly 10-year rule. Now the inherited account must be fully paid out in 10 years. This new 10-year rule applies to those beneficiaries that inherit a retirement account in 2020 or later.


Key Takeaways

  • The opportunity to stretch an IRA payout in a tax-favorable manner is no longer available to all beneficiaries post-SECURE Act. There are exceptions so it’s crucial to be familiar with the new rules.
  • In general, beneficiaries who inherited an IRA prior to 2020 are grandfathered and therefore still eligible to “stretch” post-death distributions based on their life expectancy. And sole-spouse beneficiaries are generally unaffected by the new 10-year payout rule
  • It’s important to ensure compliance with the new rules based on the different types of beneficiary categories prompted by the legislation.


There are exceptions, however. That’s why it’s critical to become familiar with beneficiary categories and the new rules that apply if you inherit an IRA. Two key things to know are:

  • Beneficiaries who inherited an IRA prior to 2020 are grandfathered and therefore are still eligible to “stretch” post-death distributions on their life expectancy.
  • Sole-spouse beneficiaries are generally unaffected by the new 10-year payout rule. They now qualify under a new type of beneficiary category known as an “Eligible Designated Beneficiary” (EDB), explained below.

Three categories of beneficiaries post-SECURE Act

A beneficiary can now fall into one of three categories.

  1. Eligible designated beneficiary – EDBs can still “stretch” based on their life expectancy. There are five categories of beneficiaries that qualify as EDBs including: (1) spouse, (2) disabled beneficiary, (3) chronically ill beneficiary, (4) beneficiary that is not more than 10 years younger than the account owner, and (5) certain minors (original account owner only) until they reach age of majority. Learn more about Eligible Designated Beneficiaries here.
  2. Non-eligible designated beneficiary (NEDBs) – Beneficiaries who do not qualify as an EDB are not eligible for the “stretch” payout and instead are subject to the new 10-year payout rule. Notably, the 10-year payout rule is not subject to annual requirement minimum distributions (RMDs). In fact, the only RMD would be the balance at the end of the 10 years after the year of the account owner’s passing. Therefore, the funds could be left in the inherited IRA for up to decade without taking any income. Importantly, if income is delayed there will be a large tax bill waiting—the entire value of the IRA at the end of 10 years will be subject to income tax unless it’s an inherited Roth IRA. Roth IRAs – Inherited Roth IRAs are subject to the same post-death payout rules. The SECURE Act unfortunately did not make an exception for Roth accounts. Therefore the 10-year payout schedule generally will still apply unless the beneficiary qualifies as an EDB.
  3. Non-designated beneficiary (NDB) – This is a beneficiary that is not a living, breathing individual (e.g., a charity, estate, or non-qualifying trust).


Source: Michael Kitces,


Why is this important?

A substantial number of IRAs will eventually be passed on to heirs (surviving spouse, children, grandchildren, siblings, friends, trust, etc.) in the coming years. With the significant changes to inherited IRAs brought about by the SECURE Act, here a few tips to ensure compliance with the myriad new rules that apply to beneficiaries.

  1. Non-Spouse designated beneficiaries that inherited an IRA before January 2020 – For example, if a non-spouse (i.e., a living individual with a life expectancy) inherited an IRA in 2019 or prior, they are grandfathered under pre-SECURE Act rules; thus, they can still stretch payouts for the remainder of their lifetime. In other words, their payout schedule is not affected by the 10-year rule under the SECURE Act.

Example: Thomas inherited his father’s IRA in 2015. Thomas was age 39 upon inheriting. As a designated beneficiary he could “stretch” payouts over his life expectancy of 43.6 years (per IRS tables). Furthermore, he could continue to take withdrawals over his life expectancy or as needed, withdraw more income, or liquidate the entire inherited account at any time. The new 10-year payout rule does not affect Thomas.

  1. Successor Beneficiary – This is a beneficiary of a beneficiary. Here, the SECURE Act plays a role in post-death payouts. Let’s continue with the above example:

Thomas dies in May 2020 leaving his inherited IRA to his son John (a successor beneficiary). Under the old pre-SECURE rules, John could have “stepped into Thomas’s shoes” thereby continuing the remaining stretch (43.6-5 = 38.6 years!) payout term after Thomas’s death. John, the successor beneficiary, however, will instead be subject to the 10-year payout rule. He will need to fully liquidate the inherited IRA by the end of 2030, thus reducing the payout schedule by 28.6 years!

  1. Non-Designated Beneficiary This is a beneficiary that is not a living person (such as an estate, charity, estate, or non-qualifying trust). Non-Designated Beneficiary (NDB) post- death payout rules are the same as before the SECURE Act.

A NDB must be paid out over five years (“five-year” payout rule) if the IRA owner died before her Required Begin Date (RBD) for RMDs—which is generally defined as April 1 after the year of her 72nd birthday. Here, the inherited IRA must be exhausted by the end of the fifth year after the account owner’s death. Like the 10-year rule, the five-year payout does not mandate annual RMDs. Notably, this is the only situation when the five-year rule is applicable—when an IRA owner dies before his/her RBD and named NDB.

PRACTICE TIP: The CARES Act waived 2020 RMDs; therefore, 2020 is not counted as one of the five years. For NDBs, the five-year payout rule for those who inherited from a decedent dying between 2015 – 2019, the five-year rule is extended. The RMD waiver effectively turns the five-year rule into a six-year rule for NDBs whose five years include 2020.

Should the account owner die on or after her RBD and name a NDB, the post-death payout is determined using the owner’s remaining single life expectancy had she lived. This is commonly referred to as the “ghost rule”. Unlike the five-year payout, RMDs apply annually under the ghost rule.

PRACTICE TIP: To avoid being subject to the restrictive NDB payout rules, we suggest naming a designated beneficiary (i.e., a living, breathing individual with a life expectancy) by naming said individual on your retirement account(s) beneficiary paperwork.

  1. Trust designated as an IRA beneficiary – Countless individuals have named their trust as beneficiary of their IRA. Depending on this situation (spendthrift, special needs, second marriage, minor, etc.) this may be prudent as it provides the owner post-death control regarding taking of income. Naming a trust comes with its share of issues—it can be both a complex and expensive endeavor. Learn more here.

However, if the trust qualified as a “look-through” trust, previously there was the ability for the stretch payout using the life expectancy of the oldest beneficiary. This was often the benefit of naming a trust and therefore dealing with the complexities. Now, post-SECURE, most trusts will be subject to the 10-year rule unless it’s a “look through” trust, and the beneficiary is an EDB, thereby eliminating the stretch.


The information provided is not directed at any investor or category of investors and is provided solely as general information about Lord Abbett’s products and services and to otherwise provide general investment education. None of the information provided should be regarded as a suggestion to engage in or refrain from any investment-related course of action as neither Lord Abbett nor its affiliates are undertaking to provide impartial investment advice, act as an impartial adviser, or give advice in a fiduciary capacity. If you are an individual retirement investor, contact your financial advisor or other fiduciary about whether any given investment idea, strategy, product or service may be appropriate for your circumstances.

These materials do not purport to provide any legal, tax, or accounting advice.

The information is being provided for general educational purposes only and is not intended to provide legal or tax advice. You should consult your own legal or tax advisor for guidance on regulatory compliance matters. Any examples provided are for informational purposes only and are not intended to be reflective of actual results and are not indicative of any particular client situation.

This material is the copyright © 2021 of Lord, Abbett & Co. LLC. All Rights Reserved.

Lord Abbett mutual funds are distributed by Lord Abbett Distributor LLC.



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