Designating Beneficiaries

The tax code permits a person establishing an IRA to designate beneficiaries who will inherit the account assets upon the death of the IRA holder. These assets pass directly to the named beneficiary outside the probate system — regardless of the terms of the account holder’s last will and testament — unless the account holder’s estate is named as beneficiary. The value of the assets in the IRA is included in the deceased holder’s taxable estate for estate tax purposes.

Any number of individuals may be the beneficiary of an IRA. An IRA owner may name a surviving spouse, children or grandchildren, non-family members, domestic partners, their estate, trusts, or charitable organizations as beneficiary. An IRA owner’s right to change beneficiaries continues until death.

The choice of beneficiary is critically important, as it affects how quickly the inherited IRA must be distributed and the associated tax consequences — particularly under rules introduced by the SECURE Act of 2019 and SECURE Act 2.0 of 2022.

Important: Failure to name a new beneficiary if the primary beneficiary dies may lead to accelerated distribution of the proceeds and adverse income tax consequences. If children are named as equal primary beneficiaries, the beneficiary form should provide for the distribution of the share of a beneficiary who predeceases the account owner.

The SECURE Act & the 10-Year Rule

The SECURE Act of 2019 made sweeping changes to inherited IRA rules for account owners who died on or after January 1, 2020. Previously, most non-spouse beneficiaries could “stretch” distributions over their own life expectancy, allowing continued tax-deferred growth for decades. The SECURE Act eliminated the stretch IRA for most beneficiaries.

Under the 10-year rule, most non-spouse beneficiaries who inherit an IRA from an owner who died after December 31, 2019 must withdraw the entire account balance by the end of the 10th year following the year of the account owner’s death. IRS final regulations (2024) clarified that if the original owner had already begun taking RMDs, the beneficiary must also take annual RMDs during years 1–9 of the 10-year window — not just empty the account by year 10.

The 10-year rule applies to both traditional and Roth inherited IRAs. For inherited Roth IRAs, distributions are tax-free as long as the original owner’s 5-year holding period had been satisfied.
Eligible Designated Beneficiaries (EDBs)

Certain beneficiaries are exempt from the 10-year rule and may still use a life-expectancy stretch. These Eligible Designated Beneficiaries (EDBs) are:

  • Surviving spouse of the account owner
  • Minor child of the account owner (until reaching the age of majority, after which the 10-year rule applies)
  • Disabled individual (as defined under IRC §72(m)(7))
  • Chronically ill individual
  • Any individual not more than 10 years younger than the account owner
Surviving Spouse Rules

A surviving spouse has the most flexibility of any beneficiary. The surviving spouse may:

  • Roll over the inherited IRA into his or her own IRA and treat it as their own account (subject to their own RMD rules based on their age)
  • Remain as a beneficiary and take distributions over his or her own life expectancy
  • Delay distributions until the deceased spouse would have reached RMD age
Beneficiary Type Distribution Rule
Surviving spouse May roll over to own IRA; stretch over life expectancy; or 10-year rule if elected
Minor child of owner Life expectancy until age of majority, then 10-year rule applies
Disabled / chronically ill Life expectancy (stretch) distributions
Beneficiary within 10 years of owner’s age Life expectancy (stretch) distributions
All other designated beneficiaries (e.g., adult children) 10-year rule — full account must be withdrawn by end of year 10
No designated beneficiary (estate, certain trusts) 5-year rule if owner died before RMD age; remaining life expectancy if owner had begun RMDs

Beneficiary Planning Considerations

The choice of beneficiary can have significant income tax and estate planning implications. IRA owners and their advisors should consider:

  • Naming contingent beneficiaries in addition to primary beneficiaries, so that if the primary predeceases the owner, the account does not pass through probate.
  • Customizing beneficiary forms to specify how the share of a deceased beneficiary is distributed — for example, to the beneficiary’s descendants (per stirpes), or equally among surviving beneficiaries.
  • Trust beneficiaries require careful drafting. Certain types of trusts (“see-through” or “conduit” trusts) may qualify for the 10-year rule rather than the more restrictive 5-year rule. Trust documents drafted before the SECURE Act may need updating.
  • Charitable organizations named as beneficiaries receive IRA assets income tax-free, making IRAs particularly tax-efficient charitable gifts compared to other assets.
  • The 10-year rule compresses taxable distributions for most adult-child beneficiaries, potentially pushing them into higher tax brackets. Roth IRA conversions during the account owner’s lifetime can reduce this burden for heirs.

For more on the tax treatment of distributions from inherited IRAs, see IRA Distributions →

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