The stretch is gone

For decades, a child who inherited your IRA could “stretch” the withdrawals over their own lifetime — small distributions each year, decades of continued tax-deferred growth. It was one of the most powerful legacy tools in the tax code. Then came the SECURE Act, and the IRS finalized its rules in 2024. Starting in 2025, most adult children who inherit an IRA now have to empty the entire account within 10 years of your death.

And there’s a wrinkle that trips people up. If you’d already begun taking your own required distributions before you passed, which nearly everyone has by their mid-70s, your kids can’t simply wait and pull it all in year 10. They’re required to take annual distributions in years one through nine and clear out the balance by year 10. Miss a required distribution and the penalty can run as high as 25% of what should have come out.

Why this lands so hard

Think about who your beneficiaries usually are: adult children in their late 40s and 50s, their peak earning years. Maybe they’re raising a family in Lehi or running a business up in Silicon Slopes. Now stack 10 years of forced IRA withdrawals on top of their already-high salaries. Every dollar comes out as ordinary income, taxed at their bracket, not yours.

A $600,000 IRA drained over 10 years can add $60,000 plus a year to a child’s taxable income, enough to push them into a higher federal bracket, cost them deductions and credits, layer Utah’s 4.45% flat tax on top and even trigger their own Medicare IRMAA surcharges if they’re nearing 65. The account you thought of as a $600,000 gift may deliver considerably less than that after the tax man takes his cut over that compressed decade.

How to defuse it before you hand it over

Here’s the encouraging part: You have far more control over this than your heirs ever will. The planning has to happen while you’re alive.

The most powerful move is often the Roth conversion. When you convert traditional IRA dollars to a Roth, paying the tax now, at your rate, ideally in those lower-income years between retirement and your first required distribution, you hand your children a very different inheritance. An inherited Roth still has to be emptied in 10 years, but the withdrawals come out completely tax-free, and the money keeps growing tax-free that entire decade. You’ve essentially pre-paid your kids’ tax bill at your rate instead of theirs, which is frequently the lower of the two.

For families who want to leave a legacy without the ticking clock, annuities and life insurance can also reshape the picture. Certain annuity strategies can pay income to a beneficiary in a controlled, structured way, and a properly designed life insurance policy passes to your heirs income-tax-free — turning a taxable IRA into a cleaner, simpler gift. The right mix depends on your situation, but the principle holds: Dollars you reposition today are dollars the IRS can’t ambush your children with tomorrow.

The Utah angle

We’re legacy-minded people here on the Wasatch Front and all over Utah. We think in generations — the family cabin, the ground you bought before Utah County exploded, the accounts you built so your kids would have a leg up. The SECURE Act didn’t take that instinct away, but it did put a 10-year fuse on one of your biggest assets.

So do the loving thing and plan for it out loud. Sit down with your children, look at what that IRA will actually cost them and decide together whether a few years of Roth conversions or a repositioning of assets could turn a tax bomb back into the blessing you always intended it to be.

Lyle Boss, The REAL BOSS Financial, a native Utahn and retirement specialist who has spent decades helping families across Utah and the Mountain West build secure, income-focused retirement plans. Boss Financial, 955 Chambers St. Suite 250, Ogden, UT 84403. Telephone: 801-475-9400. https://www.safemoneylyleboss.com/.