Legacy Planning
The Stretch IRA Is Gone: How the 10-Year Rule Taxes Your Heirs, and the Life Insurance Alternative
Most adult children now have ten years to empty an inherited IRA, in their peak earning years. Here is how the rule works in 2026 and how families are rerouting that money.
The short answer
For most heirs, yes, the stretch IRA is gone. Since the SECURE Act, adult children generally must empty an inherited IRA within ten years, often in their highest-earning years. One common alternative: take taxed distributions now and use the after-tax dollars to fund a life insurance policy whose death benefit generally passes income-tax-free.
Plenty of retirees we meet say some version of the same sentence: “We’re never going to spend that IRA. That’s the kids’ money.” It is a generous thought. It is also the moment that account stops being a retirement asset and becomes an inheritance, and inheritances have a tax character. Under current law, that character got a lot more expensive for the next generation.
This article walks through what changed, who it touches, and how families are using life insurance as the stretch alternative, with your CPA and attorney making the calls that belong to them.
What happened to the stretch IRA?
Before 2020, a non-spouse beneficiary could take distributions from an inherited IRA over their own life expectancy. A 45-year-old daughter might pull a small amount out every year for four decades, deferring tax the whole way.
For owners who died after December 31, 2019, the SECURE Act replaced that with a deadline: most non-spouse beneficiaries must empty the account by December 31 of the tenth year following the year of death. Not ten years from the date of death; the end of year ten.
The 2025 piece many families missed
For four years, nobody knew whether heirs also had to take money out in years one through nine. The IRS answered in final regulations issued in July 2024, applicable to distributions for years beginning on or after January 1, 2025. The answer turns on one date: the owner’s required beginning date (generally April 1 of the year after the owner reaches RMD age, which is 73 for most of today’s retirees under SECURE 2.0, and later for younger cohorts).
| If the owner died… | Annual RMDs in years 1–9? | Account empty by |
|---|---|---|
| On or after the required beginning date | Yes, based on the heir’s life expectancy | Dec 31 of year 10 |
| Before the required beginning date | No annual minimum | Dec 31 of year 10 |
| Owner of a Roth IRA (no lifetime RBD) | No annual minimum | Dec 31 of year 10 |
The IRS waived the penalty for missed annual distributions for 2021 through 2024 while this was unsettled. That relief has expired. A missed required distribution now generally carries a 25% excise tax, reduced to 10% if corrected in time. Figures are as of 2026; confirm current rules with your advisor.
Who can still stretch?
Eligible designated beneficiaries keep life-expectancy treatment:
- a surviving spouse, who usually has even better options, such as rolling the IRA into their own;
- a minor child of the owner, but only until majority, when the ten-year clock starts (a grandchild does not qualify);
- a beneficiary who is disabled or chronically ill;
- anyone not more than ten years younger than the owner, typically a sibling or partner.
Everyone else, including the adult children most families have in mind, falls under the ten-year rule. And a beneficiary that is not a person at all, such as an estate or a trust that doesn’t qualify as a “see-through” trust, can be worse off still. That is a drafting question for your attorney.
What does the 10-year rule cost a family?
Consider a hypothetical. Walt dies at 78 in 2026 with a $1,400,000 traditional IRA. His daughter Diane is 45, married, with household income around $220,000. Walt was past his required beginning date, so Diane takes an annual distribution in years one through nine, roughly $35,000 in year one and rising as her divisor shrinks. Then, in year ten, whatever remains (realistically well over a million dollars, depending on growth) comes out in a single tax year, stacked on top of her salary.
That year-ten distribution can run through the highest federal brackets plus any state income tax. It is a six-figure tax bill her father never knew he was writing. The exact number is your CPA’s to run, but the shape of the problem is fixed by law.
Change one fact: if Walt had died before his required beginning date, Diane would owe no annual minimums, but the year-ten deadline would still apply. Dying earlier does not reduce the tax. It just removes the floor, and without a plan, year ten usually gets worse.
How life insurance works as the stretch alternative
First, the sentence that is always wrong: an IRA cannot be rolled, exchanged or converted into a life insurance policy. Section 1035 exchanges cover life, annuity and certain long-term care contracts, not IRAs or 401(k)s. Anyone who tells you otherwise is misrepresenting the strategy.
What actually happens is plainer. Carriers call it IRA maximization:
- The owner takes a normal distribution from the IRA. Their advisor confirms the amount is sustainable.
- Income tax is paid on it that year. Their CPA sizes the distribution to the bracket and flags side effects.
- The after-tax remainder pays premium on a permanent policy owned by the adult children or a trust.
- At death, the benefit generally passes to heirs income-tax-free under IRC 101(a), in one payment, with no ten-year clock.
Three things make that last step valuable: the death benefit is leveraged from day one, it generally arrives income-tax-free, and when a properly drafted trust owns it, it can sit outside the estate as well. (Living benefits such as policy loans and withdrawals have their own tax rules: they can become taxable if the policy is a modified endowment contract or lapses with a loan outstanding.)
A hypothetical comparison
Margaret is 68, widowed, with a $900,000 traditional IRA she has never needed. Her advisor confirms $60,000 a year is sustainable; her CPA estimates roughly 30% combined tax, leaving about $42,000 for premium. Assume 5% growth, death at 85, and heirs in a combined 35% bracket. All figures are illustrative arithmetic, not a quote or projection.
| Item | Do nothing | Stretch alternative |
|---|---|---|
| IRA at death (age 85) | ≈ $1,150,000 | ≈ $600,000 |
| Heirs keep after income tax | ≈ $748,000 | ≈ $390,000 |
| Policy death benefit (illustrative guaranteed) | None | $1,100,000 |
| Total to the family | ≈ $748,000 | ≈ $1,490,000 |
Same family, same money, different destination. Your own numbers depend on age, health, underwriting and the carrier’s illustration, and any non-guaranteed values are exactly that.
When it doesn’t work
A responsible plan says “stop” as often as it says “go.” The strategy generally fails when:
- Age or health makes premium too expensive. The same $42,000 buys far less at 78 than at 68. If the illustration does not beat the after-tax account, the answer is no.
- The owner needs the income. This is for money that is truly earmarked for heirs.
- Extra income triggers side effects. Larger distributions can increase taxation of Social Security and Medicare premium surcharges on a two-year lookback. Your CPA sizes the distribution around that.
The Roth conversion question
Your CPA may suggest a Roth conversion instead, and it’s a fair comparison. Both use after-tax dollars and both can end tax-free for heirs. The differences are leverage (premium creates the full benefit immediately; a conversion is dollar-for-dollar plus growth) and location (an inherited Roth is still in the estate and still on the ten-year deadline). Often the right answer is some of each, and that call belongs to your CPA.
A five-minute self-check
Before you meet with anyone, answer these honestly:
- Who is the beneficiary on each IRA and 401(k), primary and contingent, and when did you last look at the form?
- Does any account name “my estate,” an ex-spouse, or someone who has passed away?
- If you never spend this IRA, who gets it, and do you know what they would owe on it?
- Are your heirs likely to be in high brackets when they inherit?
- Do you have a CPA and an attorney who know about this account?
The beneficiary form often matters more than any product. A designation beats the will every time, and a stale contingent can push an account onto worse distribution rules. For how trust ownership keeps a policy out of the estate, see our guide to the 2026 estate tax and the ILIT. If the bigger worry is how your own retirement money holds up first, start with the retirement wealth gap, or see how we approach retirement planning as a coordinated team.
Illustrative examples. Confirm the specifics for your situation with your own CPA or attorney.