The Call Sandra Wasn't Expecting
Sandra Keene was fifty-three years old and had never thought much about IRAs — not her own, and certainly not her father's. Robert Keene had spent thirty years as a civil engineer at a firm headquartered in Richardson, Texas, and by the time he retired in Allen at sixty-seven, he had accumulated roughly $640,000 in a traditional IRA through decades of disciplined saving. He had named Sandra as his sole beneficiary when he opened the account in 1998 and never changed the designation. When he died in October 2024 at age seventy-four, after two years of taking required minimum distributions, the IRA passed to Sandra outside of probate, directly and cleanly, just as it was designed to do.
The bank that held the account — a large national institution with a branch in Plano — called Sandra two weeks after her father's death to walk her through the transfer process. The representative was polite and competent. She explained that Sandra now had an inherited IRA, that the account balance had grown to $641,800, and that Sandra had ten years to take the money out. "You don't have to take anything right away," the representative said. "You just need to empty the account by the end of the tenth year."
Sandra thanked her, wrote down the note — ten years, must empty by 2034 — and returned to grieving her father. She had a house in McKinney, a full-time job in healthcare administration, and two college-age children. She did not take any distributions in 2025. She intended to let the account compound, take a large distribution in 2032 or 2033 when she was approaching retirement, and use the proceeds strategically. It was, she believed, exactly what the ten-year rule was designed to allow.
What Sandra did not know — what the bank representative did not explain, and what most people in Sandra's position never learn until it costs them — is that the ten-year rule operates on two completely different tracks depending on a single fact: whether the original IRA owner had already begun taking required minimum distributions before he or she died. Robert had been taking distributions for two years. That fact changed everything. It meant Sandra was not permitted to let the account sit quietly for ten years. It meant she was legally required to take annual distributions in years one through nine, based on IRS life expectancy tables, and then empty the account by the end of year ten. And it meant that by not taking a distribution in 2025 — the first year of her inherited IRA — she had missed a required minimum distribution and was now subject to a 25% excise tax on the amount she should have taken.
This is not a hypothetical. It is the position that hundreds of thousands of American families — many of them in Texas — have been in since the SECURE Act rewrite of IRA distribution rules took effect in 2020. And starting in 2025, the IRS penalty waiver that had quietly protected those families while the regulations were being finalized has expired. The bill has come due.
What the SECURE Act Changed — And What It Left Unsaid
Before 2020, the rules for inheriting an IRA were generous in a way that made long-term tax planning genuinely powerful. A non-spouse beneficiary who inherited a traditional IRA could elect to take required minimum distributions stretched over their own life expectancy — a strategy called the stretch IRA. A thirty-five-year-old who inherited a $500,000 IRA from a parent could take small distributions each year for four or five decades, keeping the bulk of the account invested and growing on a tax-deferred basis. The tax impact was real but manageable, spread across a working lifetime.
The Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, signed into law in December 2019 and effective for deaths after December 31, 2019, largely eliminated the stretch IRA for most non-spouse beneficiaries. Congress replaced it with what it called the ten-year rule: most heirs who inherit an IRA from someone who died in 2020 or later must completely empty the account within ten years of the original owner's death. No more lifetime stretch. A $640,000 IRA inherited at age fifty-three must be fully distributed by age sixty-three, compressed into a decade rather than spread across thirty or more years.
The SECURE Act's text was reasonably clear on the ten-year requirement. What it did not address clearly — and what set off five years of confusion, IRS guidance, proposed regulations, and penalty waivers — was the interaction between the ten-year rule and the annual required minimum distribution schedule that applied when the original IRA owner died after their Required Beginning Date. The law said the account had to be empty within ten years. It did not say, in plain terms, whether beneficiaries had to take any money out during years one through nine or could simply wait until year ten.
Many banks, financial institutions, financial advisors, and estate planning commentators initially read the SECURE Act as permitting an all-or-nothing approach: take nothing for nine years, then take everything in year ten. That reading turned out to be wrong for a significant subset of beneficiaries — those who inherited from an original owner who had already reached their Required Beginning Date and was actively taking RMDs. In July 2024, after years of proposed regulations and penalty waivers, the IRS issued final regulations that settled the question. For those beneficiaries, annual distributions are mandatory throughout the ten-year period.
The Rule Within the Rule: Two Tracks, Completely Different Outcomes
The critical distinction in the SECURE Act's ten-year framework hinges on a concept that most IRA owners have heard of but few can define precisely: the Required Beginning Date. This is the date by which a traditional IRA owner must begin taking required minimum distributions. Under current law as modified by the SECURE 2.0 Act, the Required Beginning Date is April 1 of the year following the year in which the IRA owner turns 73 for those born between 1951 and 1959, and April 1 following the year they turn 75 for those born in 1960 or later.
With that definition in place, the two tracks operate as follows. Track One: the original owner died before their Required Beginning Date — meaning they had not yet reached the age at which they were required to start taking distributions, and no RMD schedule had begun. Beneficiaries under the ten-year rule on this track have full flexibility. They may take nothing for nine years and withdraw the entire balance in year ten. They may take equal annual distributions. They may skip years and bunch distributions. As long as the account is empty by the end of year ten, there is no annual distribution requirement.
Track Two: the original owner died on or after their Required Beginning Date — meaning they had reached the mandatory distribution age and had been taking (or were required to take) annual RMDs. Sandra's father Robert was on this track. He had been taking required distributions since age seventy-two. He died after his Required Beginning Date. For beneficiaries on Track Two who are subject to the ten-year rule, the IRS final regulations are unambiguous: annual required minimum distributions must be taken in years one through nine of the ten-year period, calculated using the beneficiary's single life expectancy from the IRS Uniform Lifetime Table. The account must then be completely emptied by the end of year ten. There is no "wait-and-take-it-all" option.
Sandra was on Track Two. She did not take a distribution in 2025, which was year one of her ten-year period. The amount she should have taken — calculated based on her age and the account balance — was approximately $21,400. The 25% excise tax on that missed distribution: approximately $5,350, owed to the IRS on her 2025 tax return, in addition to the income tax she will eventually owe when she does take the distribution. The penalty is reduced to 10% if she takes a corrective distribution within a two-year window, but the correction requires filing IRS Form 5329 and documenting the error and the corrective action.
Why Five Years of Penalty Waivers Made This Worse
The IRS was aware, throughout the regulatory process, that the distinction between Track One and Track Two was not obvious from the text of the SECURE Act, and that many financial institutions had given beneficiaries incorrect guidance. In response, the IRS issued a series of penalty relief notices — Notice 2022-53, Notice 2023-54, and Notice 2024-35 — that effectively suspended the excise tax on missed annual RMDs for beneficiaries in Track Two situations for tax years 2021, 2022, 2023, and 2024. The IRS finalized its regulations in July 2024, and with the final regulations in place, it declined to extend the waiver further. For tax year 2025 and beyond, the 25% excise tax applies in full to missed annual RMDs from inherited IRAs where the original owner died after their Required Beginning Date.
The five years of waivers may have inadvertently hardened a misunderstanding. Beneficiaries who received incorrect guidance from financial institutions in 2020 or 2021 — and who were never corrected during the waiver period — may have spent five years believing their approach was acceptable. The account grew during that time, untouched, accumulating deferred tax liability. The beneficiaries assumed they were following the rules. They were not, and the waiver period is now over.
What Texas Families Need to Know About the Tax Math
Texas has no state income tax, which means IRA distributions are not subject to a second layer of state taxation when they are withdrawn — a genuine advantage over beneficiaries in states like California, New York, or Minnesota, where combined marginal rates can exceed 50% on large distributions. But federal income tax applies in full, and the ten-year compression of a substantial IRA into a decade of required distributions can push a beneficiary into significantly higher federal brackets than they would otherwise face.
Questions about estate planning? A WG Law attorney can walk you through your options.
A beneficiary in the 22% federal bracket who must take $40,000 or $50,000 of additional taxable income every year for nine years — layered on top of salary, investment income, and Social Security — may find themselves pushed into the 32% or even 37% bracket in high-distribution years. The bracket expansion is not hypothetical; it is a predictable consequence of compressing decades of deferred income into ten years. Strategic planning around distribution timing — taking more in years where other income is lower, coordinating with retirement, factoring in capital gains rates on other assets — can meaningfully reduce the lifetime tax bill on an inherited IRA.
The planning cannot happen, however, if the beneficiary does not know the clock is running.
How Your Own Estate Plan Should Account for Your IRA
The inherited IRA rules carry important lessons not just for those who have already inherited, but for IRA owners who are planning what happens when they die. Several strategies are worth discussing with an estate planning attorney.
Review your beneficiary designations now. A traditional IRA does not pass through your will. It passes by contract, directly to the named beneficiary on the account. If that beneficiary is an adult child, they will almost certainly be subject to the ten-year rule — and if you die after your Required Beginning Date, they will face mandatory annual distributions. The only way to change this outcome is to change the beneficiary designation before you die, or to structure the account differently.
Understand how trusts interact with inherited IRAs. Naming a trust as the IRA beneficiary can provide control over how distributions are used — critical for beneficiaries who are minors, have special needs, or have creditor or divorce vulnerabilities. But trust-as-beneficiary rules under the SECURE Act are complex. A "conduit trust" passes distributions through to the beneficiary and is generally treated like naming the beneficiary directly. An "accumulation trust" retains distributions inside the trust — potentially useful for asset protection, but with its own tax mechanics. Trusts drafted before 2020 may have language that triggers unintended tax consequences under the SECURE Act framework and should be reviewed.
Consider Roth conversions as a legacy strategy. A Roth IRA has no required minimum distributions during the original owner's lifetime, and inherited Roth IRAs are subject to the ten-year rule but distributions are tax-free to the beneficiary. Converting traditional IRA assets to a Roth during your lifetime — paying the income tax now, while you are in a known bracket — can dramatically reduce the tax burden your heirs face over their ten-year distribution period. The conversion math depends on your current versus expected future tax rates, but for many Texans who anticipate leaving a large traditional IRA to adult children, systematic Roth conversions are among the most tax-efficient legacy moves available under current law.
Named beneficiaries matter enormously. A surviving spouse who inherits an IRA can roll it into their own IRA and defer distributions until their own Required Beginning Date — a far more favorable treatment than the ten-year rule. Minor children of the original owner (not grandchildren) are eligible designated beneficiaries and may use the life expectancy method until majority, after which the ten-year rule kicks in. Individuals who are disabled or chronically ill, or who are within ten years of the original owner's age, are also eligible designated beneficiaries entitled to the life expectancy stretch. These categories represent planning opportunities that should be explicitly evaluated when structuring beneficiary designations.
What Sandra Did Next
Sandra learned about the Track Two problem in early 2026, when a friend mentioned it at a gathering in McKinney. She called an estate planning attorney the following week. The review was methodical: confirm the date of her father's Required Beginning Date, confirm the date of his death, confirm that Sandra was subject to annual RMDs beginning in 2025, calculate the missed distribution for 2025, and prepare IRS Form 5329 to claim the corrective distribution exception and reduce the penalty from 25% to 10%.
More importantly, Sandra's attorney helped her build a distribution strategy for the remaining eight years of her inherited IRA — one that coordinated the mandatory annual amounts with her expected income in each year, identified windows where she might accelerate distributions voluntarily to reduce future bracket exposure, and positioned the account appropriately within her broader financial picture. The correction was manageable. The nine-year plan that came out of it was genuinely useful. What had felt like a catastrophic mistake turned out to be a course-correction that could be fixed, documented, and planned around.
What Sandra said, at the end of that first meeting, was something her attorney had heard before: "Why didn't anyone tell me this when I opened the inherited IRA?" The honest answer is that bank representatives are not estate planning attorneys, financial advisors often specialize in accumulation rather than distribution strategy, and the rules changed significantly in 2020 in ways that many generalist advisors have not fully absorbed. The people who know the rules well tend to be the attorneys and tax professionals who work with these issues every day.
Inherited IRA Planning at WG Law
At WG Law, Carla Alston holds an LL.M. in Taxation from NYU School of Law and has nearly four decades of experience navigating exactly the kind of tax-smart planning that inherited IRAs require. As a former in-house tax attorney at Alcon Laboratories and the founder of her own tax and estate planning practice since 1993, Carla evaluates inherited IRA strategy as part of a comprehensive picture — not in isolation. Taylor Willingham, the firm's founding attorney, has guided more than 10,000 Texas families through estate plans, including the beneficiary designation and IRA distribution planning decisions that determine how retirement assets ultimately pass to the next generation.
If you have recently inherited an IRA, have not reviewed your distribution obligations, or are an IRA owner who wants to understand how your account will be taxed when it passes to your heirs — those are conversations worth having now, while the options are open.
Call 214-250-4407 or contact WG Law to request a consultation. We serve families throughout McKinney, Allen, Frisco, Plano, Richardson, Prosper, Celina, Southlake, and the greater Dallas-Fort Worth Metroplex from our offices in McKinney (7701 Eldorado Pkwy, Suite 200) and Southlake (1560 E Southlake Blvd, Suite 100, Office 116).
For related reading, see our articles on 529 superfunding as a tax-smart estate planning strategy, why beneficiary designations are the most overlooked part of your estate plan, and what happens to your debts when you die in Texas.
This article is provided for general informational purposes only and does not constitute legal advice. IRA distribution rules, RMD calculations, excise tax rates, and correction procedures are complex and subject to change. The facts described in this article reflect IRS regulations and the SECURE Act framework as of the date of publication. For guidance tailored to your situation, consult a licensed Texas estate planning attorney and a qualified tax professional.