CFP Explains Inherited Retirement Accounts—and Who They Help Most

If you’ve recently inherited a retirement account from a loved one—or think you might someday—there’s something important you need to know: The rules have changed dramatically, and the clock may already be ticking. Over the past few years, two landmark pieces of legislation have quietly reshaped the way inherited retirement accounts work, and missing a deadline or misunderstanding the new rules could cost you thousands of dollars in unexpected taxes and penalties.

It started when President Donald Trump signed the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) in 2019. That was followed by President Joe Biden’s SECURE 2.0 Act in 2022, which made it easier for Americans to save for retirement, expanded plan access and adjusted the timeline for mandatory withdrawals. Crucially, it also changed how long nonspouse beneficiaries have to claim money in an inherited retirement account—a change that affects far more families than most people realize.

So what does all of this mean for you? We spoke with financial advisor and certified financial planner Caroline Fugel, who broke it all down in plain English. Here’s everything you need to know.

What is an inherited retirement account?

An inherited retirement account is a type of retirement account (like an Individual Retirement Account (IRA) or 401(k)—that can roll over to a spouse, child or other beneficiary upon someone’s death. They are pretty easy to enroll in, says Fugel. “When opening a retirement account, whether it’s a 401k at your employer or an IRA, just list a beneficiary designation. This tells the retirement custodian [who administers the money in your retirement account] where the retirement assets should be directed at your passing.”

“Those retirement assets are then transferred into separate inherited retirement accounts for designated beneficiaries,” she continues. “It is important to note, beneficiaries cannot consolidate these inherited retirement accounts into their own personal retirement accounts, with the exception of spouses. A surviving spouse can transfer the inherited retirement assets into their own personal IRA.”

Now, some people worry opening an inherited retirement account at or after age 50 isn’t worth the effort, but Fugel says it is.

“For women over 50, inherited retirement benefits are great tools to help support you at this phase in life. A common instance we see is when a parent passes away and the children inherit the retirement accounts,” she explains. “For the surviving daughter in her 50s or 60s who receives this inherited retirement account, this provides additional flexibility for the daughter’s life. Maybe it allows her to retire a few years earlier than planned, take the family on a vacation or catch up on household maintenance projects.”

Fugel also notes that while there is no age or income limit required when you set up the account, some laws can make it harder for younger beneficiaries—such as grandkids—to get their money right away.

“If the beneficiary is a minor, a parent or guardian can manage the account for the child,” she explains. “Once the minor attains the age of 21, they must fully withdraw the account within 10 years.”

How the SECURE Act impacts inherited retirement accounts

According to Fugel, “The SECURE Act requires that nonspousal beneficiaries distribute inherited retirement assets within 10 years of the owner’s passing for those who passed away in 2020 and after.”

“This is a significant change for beneficiaries who received inherited retirement assets in 2019 or earlier, which do not have the same 10-year ultimate distribution rule,” she continues. “The 10-year distribution rule can create some significant tax surprises if not monitored and planned accordingly.”

To help avoid that Fugel recommends doing the following:

“In some instances, it may make sense for beneficiaries with new inherited retirement assets to spread out the distributions evenly over the 10-year period to avoid a large distribution and tax impacts in the final year,” she says. “Another strategy may be to plan larger inherited retirement account distributions in lower income years–for example: after retiring from your job when your earned income is lower, before you start collecting Social Security benefits or before additional inherited retirement assets are received in the future from another family member or parent.”

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This story was originally published May 22, 2026 at 6:00 PM.