Stretching the IRA in a post–SECURE Act 2.0 world: special rules for disabled beneficiaries

When Congress passed the SECURE Act in 2019 and expanded it through SECURE Act 2.0 in 2022, it marked a major shift in retirement account rules. One of the most impactful changes was the near elimination of the “stretch IRA,” a strategy that allowed heirs to extend withdrawals, and tax deferral, over their lifetimes. Today, most non-spouse beneficiaries must fully distribute inherited IRAs within 10 years of the original owner’s death.

However, not all beneficiaries are subject to this 10-year rule. Congress carved out exceptions for a select group known as Eligible Designated Beneficiaries (EDBs), which includes surviving spouses, minor children, chronically ill individuals, beneficiaries less than 10 years younger than the account owner, and, critically, disabled individuals.

Understanding the life-expectancy exception

For disabled beneficiaries, the IRS permits a life-expectancy payout schedule, allowing the inherited IRA to be distributed gradually over the beneficiary’s lifetime. This approach can significantly reduce annual tax burdens and preserve long-term financial security. Instead of liquidating the account within 10 years, the beneficiary takes Required Minimum Distributions (RMDs) annually, calculated using the IRS’s Single Life Table.

To qualify, the disability must be documented as of the IRA owner’s date of death. A later determination does not apply retroactively. The law defines a disabled individual under IRC §72(m)(7), which mirrors the Social Security Administration’s standard: the person must be “unable to engage in any substantial gainful activity due to a medically determinable physical or mental impairment expected to result in death or be of long-continued and indefinite duration.”

Documentation and timing are critical

An official SSA disability determination, such as eligibility for SSDI or SSI, typically satisfies the requirement. Additionally, trustees and advisors must coordinate early to confirm the trust’s structure before the end of the calendar year following the account owner’s death. Missing this deadline could default the IRA to the 10-year rule.

Extending the stretch to other beneficiaries

A lesser-known provision allows other beneficiaries to “benefit” from the disabled individual’s life expectancy under certain conditions. If an IRA is left to multiple beneficiaries, and one is disabled, the entire group may qualify for stretch treatment, provided the IRA is either divided into separate accounts or held in a properly structured see-through trust.

For example, if a parent leaves an IRA equally to three children, one of whom is disabled, and the account is split or held in a compliant trust, all three may take distributions based on the disabled child’s life expectancy. This can provide decades of tax-deferred growth for the entire group.

Case illustration

Consider a 35-year-old disabled beneficiary inheriting a $600,000 IRA. Under the life-expectancy method, they might begin taking annual RMDs of around 2.5% of the account balance. The remaining assets continue compounding, tax-deferred. Under the 10-year rule, the entire account would need to be distributed, and taxed, within a decade, potentially pushing the beneficiary into a higher income bracket and reducing long-term growth.

Timely account separation

Advisors should emphasize the importance of timely account separation. When multiple beneficiaries inherit a single IRA, establishing separate accounts by December 31 of the year following death ensures each beneficiary’s payout schedule is determined independently. This preserves flexibility and ensures compliance with IRS rules.

A powerful planning opportunity

For families navigating both retirement planning and long-term care, the life-expectancy exception offers a powerful opportunity to preserve wealth across generations. Understanding and applying these rules correctly can mean the difference between decades of tax-deferred growth and a substantial tax bill.

Early coordination among estate planners, trustees and financial advisors is essential. With proper documentation, timely action and strategic trust planning, families can unlock meaningful benefits for disabled beneficiaries and potentially for others inheriting alongside them.

Mark Bartram is a trusts and estates attorney with Sheehan Phinney in New Hampshire specializing in estate planning, fiduciary administration, and tax-efficient wealth transfer strategies. This article is for informational purposes only and does not constitute legal or tax advice.