How do SECURE Act rules affect IRA beneficiaries

I recently had a client, David, come to me in a complete panic. His mother passed away unexpectedly, and he was the sole beneficiary of her substantial IRA. He’d been told for years he could stretch distributions over his lifetime, but the brokerage firm was insisting on a completely different timeline. He’d found a handwritten codicil to her Trust, attempting to preserve the old rules, but it wasn’t properly witnessed, rendering it useless. The result? A drastically accelerated payout schedule and a huge tax bill he wasn’t prepared for – costing him tens of thousands of dollars. David’s situation is unfortunately common since the passage of the SECURE Act.

What Changed with the SECURE Act?

The Setting Every Community Up for Retirement Enhancement (SECURE) Act, enacted in 2019, fundamentally altered the rules for inherited IRAs. Prior to SECURE, beneficiaries of traditional IRAs could “stretch” distributions over their lifetime, using their life expectancy to calculate the annual required minimum distribution (RMD). This meant smaller annual taxes and more potential growth within the IRA. The SECURE Act largely eliminated this “stretch” IRA for most non-spouse beneficiaries.

The 10-Year Rule for Most Beneficiaries

Now, for deaths occurring after December 31, 2019, most beneficiaries must deplete the entire IRA balance within 10 years. This isn’t a 10-year annuity; you must take distributions annually, but the entire account must be gone by the end of the 10th year. This accelerated timeline significantly increases annual taxable income, potentially pushing beneficiaries into higher tax brackets. It also diminishes the potential for tax-deferred growth. As a CPA, I often see clients in this situation face surprisingly large tax liabilities simply because they didn’t anticipate the speed of the withdrawals.

Who is Exempt from the 10-Year Rule?

Certain beneficiaries are exempt from the 10-year rule, including:

• Spouses: Spouses can continue to treat the IRA as their own.
• Disabled Beneficiaries: Beneficiaries who are disabled can continue to stretch distributions over their lifetime.
• Minor Children: Distributions can be stretched over the child’s lifetime until they reach the age of majority (typically 18 or 21, depending on the state).
• Chronic Illness: Beneficiaries with a chronic illness may also qualify for lifetime distributions.
• “Eligible Designated Beneficiaries”: This is a complex category and requires careful legal analysis.

How Does This Affect Estate Planning?

The SECURE Act underscores the importance of proactive estate planning. A properly drafted Trust can mitigate some of the negative consequences of the SECURE Act, especially for high-net-worth individuals. For example, a “See-Through Trust” can be designated as a beneficiary, allowing for continued stretch distributions under specific circumstances. However, these Trusts are complex and require specialized drafting. The OBBBA, which permanently increased the Federal Estate Tax Exemption to $15 million per person effective Jan 1, 2026, gives more people the ability to structure their estate plan without the worry of the federal estate tax. I’ve spent 35+ years helping clients navigate these complexities, combining my legal expertise with my CPA background to minimize tax liabilities and maximize the benefits for their heirs.

The CPA Advantage: Step-Up in Basis and Valuation

One of the biggest advantages I bring to estate planning as a CPA is my understanding of the step-up in basis. When an asset like an IRA is inherited, the basis is “stepped up” to the fair market value at the date of death. This can significantly reduce capital gains taxes if the beneficiary later sells the assets. Careful valuation at the time of death is crucial. Moreover, understanding the potential tax implications of different distribution strategies is paramount. The SECURE Act dramatically changes that calculation, and a proper analysis is required to determine the most advantageous approach. It is important to note, that as of March 2025, domestic U.S. LLCs are exempt from mandatory BOI reporting under the Corporate Transparency Act; however, executors managing foreign-registered entities must still file updates within 30 days to avoid fines of $500/day.

What If the Beneficiary Dies Before Depleting the IRA?

This is a critical planning point. If a beneficiary dies before the 10-year period expires, the remaining IRA funds are distributed according to their own beneficiary designation. This can create a cascading effect of accelerated distributions and increased taxes. Without specific RUFADAA language (Probate Code § 870) in your Trust or Will, service providers like Coinbase and Google can legally deny your executor access to your digital assets.

AB 2016 and Small Estate Affidavits: Do They Help?

For California residents, it’s important to understand how AB 2016 and the Small Estate Affidavit might apply. A Small Estate Affidavit (strictly for real property <$69,625, used for timeshares/vacant land) is a simpler process, but it’s limited to very small estates. For deaths on or after April 1, 2025, a primary residence valued up to $750,000 qualifies for a 'Petition for Succession' under AB 2016 (Probate Code § 13151). However, this is a "Petition" that requires a Judge's Order, NOT an "Affidavit." Furthermore, to qualify, the decedent's other non-real estate assets (cash, stocks, etc.) must typically remain below the separate $208,850 Small Estate limit.

What standards do California judges use to determine a will’s true meaning?

In California, a last will and testament operates within a probate system that emphasizes intent, clarity, and procedural compliance. When properly drafted, a will does more than distribute property—it creates legally enforceable instructions that guide courts, fiduciaries, and beneficiaries through administration with fewer disputes and less uncertainty.

To create a valid document, you must ensure the signer has legal capacity, strictly follow will legal requirements, and ensure you are correctly identifying the will maker to prevent identity disputes.

For California residents, understanding how intent, authority, and compliance interact is one of the most effective ways to protect family harmony and estate integrity. A will that anticipates probate scrutiny is far more likely to be honored as written and far less likely to become the source of unnecessary conflict.

Resources for Asset Management & Transfer

• Property Tax Reassessment: California State Board of Equalization (Prop 19)
  This page details the “Base Year Value Transfer” rules. It explains that heirs can only avoid a property tax reassessment if the inherited home becomes their primary residence and a claim is filed within one year of the date of death.
• Real Estate Probate (AB 2016): California Probate Code § 13151 (Petition for Succession)
  The specific statute for the AB 2016 process. It outlines the requirements for using a court-approved “Petition” (not an affidavit) to transfer a primary residence worth $750,000 or less (gross value) for deaths occurring after April 1, 2025.
• Small Estate Affidavit: California Probate Code § 13100 (Personal Property)
  Access the statutory language for the “Small Estate Affidavit.” This procedure is strictly for Personal Property (cash, stocks, vehicles) and is limited to estates with a total value of $208,850 or less (effective April 1, 2025).
• Federal Estate Tax: IRS Estate Tax Guidelines
  The authoritative federal resource for estate valuation. It reflects the 2026 exemption increase to $15 million per person established by the One Big Beautiful Bill Act (OBBBA), which is critical for high-net-worth asset planning.
• Unclaimed Assets: California State Controller – Unclaimed Property
  The primary portal for executors and heirs to search for “lost” assets—such as forgotten bank accounts, uncashed dividends, and insurance benefits—that have been remitted to the State of California for safekeeping.
• Business/LLC Compliance: FinCEN – Beneficial Ownership Information (BOI)
  The official portal for corporate transparency reporting. While many domestic U.S. LLCs received exemptions in 2025, executors managing foreign-registered entities or specific non-exempt structures must still consult this resource to ensure compliance.