A Stretch IRA was an estate planning strategy that extended the tax-deferred status of an inherited IRA when it was passed on to a non-spouse beneficiary. It allowed the beneficiaries to take required minimum distributions (RMDs) based on their own life expectancy, effectively “stretching” the life of the IRA and the tax advantages associated with it, such as tax-deferred or tax-free growth. This strategy was particularly popular as a way to pass wealth across generations while minimizing the tax burden.

However, it’s essential to note that the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law in December 2019, significantly limited the effectiveness of the Stretch IRA strategy. The SECURE Act mandates that most non-spouse beneficiaries of an inherited IRA (whether it’s a traditional IRA or Roth IRA) must withdraw the entire balance within ten years after the IRA owner’s death, eliminating the possibility to “stretch” the tax benefits over the beneficiary’s life expectancy.

There are exceptions to this rule, such as when the beneficiary is a minor, disabled, chronically ill, or not more than ten years younger than the deceased IRA owner. In such cases, the “stretch” provision may still apply, allowing the beneficiary to take distributions over their life expectancy.