Distribution Strategies for Non-Eligible Beneficiaries of Individual Retirement Accounts under the 2019 SECURE Act

This article develops a model to guide financial planners and beneficiaries of inherited individual retirement accounts (IRAs) in evaluating distribution strategies under the SECURE Act of 2019. This act changed the previous rule that allowed IRA beneficiaries to stretch out required minimum distributions based on life expectancy, known as a “stretch IRA.” Before 2020, this allowed younger beneficiaries to shield asset returns from income tax for extended periods. The SECURE Act eliminated this option for most beneficiaries, except those categorized as “eligible designated beneficiaries.” We focus on traditional IRA beneficiaries constrained by the 10-year distribution rule, modeling their choice between annuitizing distributions over 10 years or making a single distribution at the end of 10 years. Our model illustrates that, under certain realistic assumptions, these choices offer definitive rankings in terms of wealth maximization over the 10-year horizon after inheritance.