You did everything right. You took your required distributions, stayed on top of the paperwork, and followed the advice you were given. So it might come as a shock to learn that a quiet change in the tax code could still leave your family with a massive bill they never saw coming.
The Rule Change That Caught Families Off Guard
The SECURE Act, passed in 2019, changed how inherited IRAs work in a pretty significant way. Before it, beneficiaries could spread distributions out over their lifetime, which meant the tax impact was gradual and manageable. That’s mostly gone now.
Today, most non-spouse beneficiaries have 10 years to fully distribute an inherited IRA. At first glance, that sounds like plenty of time. But here’s where it gets tricky: if you’re only taking the minimum required distribution each year, the account keeps growing. And by Year 10, everything that’s left — every untaxed dollar — comes due all at once.
For a lot of families, that single year becomes the most expensive tax year of their lives. We’re talking about distributions that can push you into the highest tax brackets, trigger Medicare surcharges, and undo years of thoughtful financial planning.
A Story We See More Often Than You’d Think
We recently sat down with a couple who came to us feeling pretty confident. They’d inherited a sizable IRA, they were taking their annual distributions like clockwork, and they figured they were in good shape.
When we walked through the full 10-year picture together, we realized they didn’t have the full picture. The account was still growing. The distributions weren’t keeping up. And by Year 10, they were on track for a tax bill bigger than anything they’d ever faced.
The good news? There was still time to fix it. By reworking the distribution schedule across the remaining years, we were able to spread that tax impact out, keeping them in lower brackets each year and saving them a significant amount overall. More importantly, they walked away with a plan they actually understood and felt good about.
There’s a Lot You Can Do If You Start Early Enough
The 10-year rule doesn’t have to be a trap. It can actually be a planning opportunity, especially if you get ahead of it. Depending on your situation, that might mean taking larger distributions in years when your income is lower, doing Roth conversions to reduce the untaxed balance over time, or coordinating withdrawals with your other income sources to stay out of higher brackets.
The families who come through this well aren’t the ones who got lucky — they’re the ones who sat down with someone, mapped out the full picture, and made a plan before the deadline crept up on them.
If you have an IRA, a 401(k), or any qualified retirement account, and people in your life you want to take care of, this is worth a conversation sooner rather than later. Reach out to GenWealth and let’s make sure your legacy lands the way you intended.
Traditional IRA account owners have considerations to make before performing a Roth IRA conversion. These primarily include income tax consequences on the converted amount in the year of conversion, withdrawal limitations from a Roth IRA, and income limitations for future contributions to a Roth IRA. In addition, if you are required to take a required minimum distribution (RMD) in the year you convert, you must do so before converting to a Roth IRA
This material is for general information and educational purposes only and is not intended to provide specific advice or recommendations for any individual. Investing involves risk including the loss of principal. There is no assurance that the views or strategies discussed are suitable for all investors or will yield positive outcomes. GenWealth Financial Advisors and LPL Financial do not provide legal advice or tax services. Please consult your legal advisor or tax advisor regarding your specific situation.
