How the SECURE Act 2.0 May Affect Inherited IRAs and Certain Trusts

When it comes to retirement planning, few laws have stirred as much recalibration as the SECURE Act—and now, its sequel is rewriting the rules again. As of January 1, 2025, SECURE Act 2.0 steps onto the stage with new rules and stricter timelines, especially for those navigating the complex terrain of inherited IRAs and trust-based beneficiaries. Whether you’ve inherited an IRA directly or via a trust or have an IRA with a trust as a beneficiary, it’s important to understand the changes and plan accordingly.¹

Inherited IRAs: The 10-Year Rule

Secure 2.0 clarifies required minimum distributions (RMDs), starting in 2025:

• If the original owner died before RMDs were required, the account must be fully distributed by year 10. Annual distributions are not required.
• If the decedent had already started RMDs, beneficiaries must take annual distributions in years 1 through 9— calculated using the deceased owner’s life expectancy (see the IRS Single Life Expectancy Table), in addition to full distribution by year 10. This ends the "wait-and-withdraw" strategy used previously.

The IRS provided relief from penalties between 2020 and 2024, even though the 10-year clock was ticking. But enforcement of these rules resumed in full in 2025. Non-spouse beneficiaries must calculate and withdraw RMDs or face penalties.

The Challenges of Trusts as IRA Beneficiaries

Secure 2.0 also clarifies how trusts are treated. Most conduit and accumulation trusts now fall under the same 10-year rule as individuals:

• Conduit trusts must pass RMDs directly to the beneficiary each year, which may increase taxable income unexpectedly.  This type of trust is merely a “conduit” to hold the IRA and pass funds received during the year along to the beneficiary before the year ends. 2
• Accumulation trusts can retain distributions instead of passing them directly to the beneficiary, but these trusts reach the highest tax bracket at very low-income levels, reducing the inheritance. In an accumulation trust, money can be kept and accumulated in the trust rather than being passed along to the beneficiary.2
• Only specific types of trusts—such as those benefiting chronically ill or disabled individuals—may qualify for more favorable treatment.

Implications for IRA Owners

If a trust is named as your IRA beneficiary, now is a good time to review your estate plan. Many trusts were drafted before the SECURE Act, assuming lifetime “stretch” RMDs. With that option gone, your plan may unintentionally accelerate payouts and taxes. For example, if you wanted to protect heirs by spreading distributions across decades, the new rules could unintentionally accelerate both payouts and taxes.

Preparing in Advance

Some ways for account owners to proactively plan for the new rules include:

• Review trust documents with your estate planning attorney.
• Consider whether heirs might be better served as direct IRA beneficiaries instead of through a trust.

Beneficiaries can do the following:

• Confirm if the original IRA owner had started RMDs. This determines whether annual RMDs are now required.
• Identify your beneficiary classification – spouse, eligible designated beneficiary, non-eligible beneficiary, or trust.
• Plan annual RMDs through year 9, if applicable, and ensure the full account is distributed by year 10 to avoid penalties 

With the SECURE Act 2.0 in effect, RMD rules for inherited IRAs and trusts are stricter than ever. Both account owners and beneficiaries should review estate and tax plans now.  Proactive steps today can help protect your inheritance tomorrow.

Sources:

• Trust as IRA Beneficiary: Tax Consequences and Distribution Rules - Accounting Insights
• IRS Publication 590-B (2024): https://www.irs.gov/publications/p590b
• https://investor.vanguard.com/investor-resources-education/retirement/rmd-rules-for-inherited-iras
• https://www.kitces.com/blog/secure-act-2-0-irs-regulations-rmd-required-minimum-distributions-10-year-rule-eligible-designated-beneficiary-see-through-conduit-trust/
• https://www.kiplinger.com/taxes/irs-10-year-rule-for-inherited-iras-kiplinger-tax-letter