Handling inherited IRAs under the new tax laws in Massachusetts comes down to one change: if you inherited an IRA from someone other than your spouse who died in 2020 or later, you generally must empty the account within 10 years, and under IRS final regulations now in force, you may also owe a required minimum distribution every year in the meantime. The old lifetime stretch is gone for most beneficiaries.
Because Massachusetts taxes income on top of federal tax, the planning question is no longer how long you can defer, but which years you should take the money in.
What Are the New Tax Laws for Inherited IRAs?
Three separate changes stacked on top of each other, which is why the rules feel confusing.
The SECURE Act of 2019 ended the lifetime stretch IRA for most non-spouse beneficiaries. For deaths on or after January 1, 2020, most beneficiaries fall under a 10-year rule.
SECURE 2.0 in 2022 moved the required beginning date for the original owner’s own distributions, which matters because it determines whether you owe annual distributions.
IRS final regulations issued in July 2024 settled the question practitioners argued about for four years: yes, annual required minimum distributions apply during the 10-year window in many cases. The IRS had waived penalties for missed beneficiary distributions from 2021 through 2024, so those requirements became enforceable starting in 2025.
If you inherited during the waiver years and took nothing, you are not penalized for those years, but the requirement applies now.
Am I Subject to the 10-Year Rule?
It depends on your relationship to the person who died. The rules split beneficiaries into three groups.
Eligible designated beneficiaries can still stretch distributions over their life expectancy. There are five categories:
- A surviving spouse
- A minor child of the account owner, until they reach the age of majority
- A person who is disabled
- A person who is chronically ill
- A person not more than 10 years younger than the account owner
Designated beneficiaries who do not fall in those categories are subject to the 10-year rule. In practice, this is most adult children, grandchildren, nieces, nephews, and friends.
Non-designated beneficiaries, meaning an estate, a charity, or a trust that fails the see-through requirements, get the worst treatment. Depending on when the owner died, that is either a 5-year rule or distributions over the owner’s remaining life expectancy.
Note the trap for minor children. The exception ends when they reach the age of majority, at which point the 10-year clock starts. It is a delay, not a permanent stretch.
Do I Have to Take Money Out Every Year?
This is the question the final regulations answered, and it turns on one fact: whether the original owner had reached their required beginning date.
- If the owner died on or after their required beginning date, you must take an annual required minimum distribution in years one through nine, and empty the account by December 31 of the tenth year after death.
- If the owner died before their required beginning date, no annual distribution is required. You can take nothing for nine years and everything in year ten, or spread it however you like, as long as the account is empty by the deadline.
The IRS required minimum distribution guidance covers the calculation details. The penalty for missing a required distribution is 25% of the shortfall, reduced to 10% if you correct it promptly, so this is not a rule to guess at.
One point that catches people: the calendar years count from the year of death regardless of when you learned about the account. Inheriting in 2021 does not give you ten fresh years starting when the waiver ended.
Why Does the Massachusetts Angle Matter?
Because every dollar you withdraw is taxed twice, and the state layer is easy to overlook.
Distributions from an inherited traditional IRA are ordinary income. That means federal tax at your marginal rate plus Massachusetts income tax. Massachusetts also imposes a surtax on annual income above roughly $1 million, indexed each year, and a large IRA withdrawal is exactly the kind of one-time event that can push a taxpayer over that line.
So the compressed 10-year window creates a specific risk for Massachusetts beneficiaries. A $700,000 inherited IRA taken in year ten as a lump sum lands entirely in a single tax year, potentially at the top federal bracket, plus state tax, plus possibly the surtax. Spread across ten years, the same money can be taxed at substantially lower rates.
The instinct to defer as long as possible is usually wrong under the new rules. Deferral used to spread taxes over decades. Now it concentrates them.
How Should I Time the Withdrawals?
The right pattern depends on your own income, not on the account.
Situations where taking more early makes sense:
- Your income is temporarily low, because of retirement before Social Security starts, a job change, or a sabbatical. Filling up the lower brackets in those years is efficient.
- You expect your income to rise, so later years would be taxed higher.
- You are near the surtax threshold in year ten and need to avoid a spike.
Situations where deferring makes sense:
- You are in peak earning years now and will retire within the ten-year window.
- You expect to move to a lower-tax state before the deadline.
- No annual distribution is required and your bracket will fall soon.
The principle is to smooth taxable income across the ten years rather than optimize for deferral, which usually means taking more than the minimum in low-income years.
What About Spouses?
Spouses have options nobody else does, and choosing wrong costs real money.
- Roll it into your own IRA. Usually best if you are younger than the required beginning age, because it delays distributions until your own age and lets you name new beneficiaries.
- Keep it as an inherited IRA. Better if you are under 59½ and may need the money, because inherited IRA distributions avoid the 10% early withdrawal penalty.
A surviving spouse under 59½ who rolls over and then needs funds can trigger a penalty that keeping the inherited account would have avoided.
Should a Trust Be the Beneficiary?
Sometimes, and the drafting has to be precise.
Naming a trust can be right when your beneficiary is a minor, has creditor exposure, is in an unstable marriage, or receives public benefits. The cost is complexity and often faster taxation.
- A conduit trust must pass every distribution out to the beneficiary immediately. It preserves the 10-year treatment but provides limited protection, since the money leaves the trust.
- An accumulation trust can retain distributions, which gives strong protection, but retained income is taxed at compressed trust rates that reach the top bracket quickly.
- A trust that fails the see-through requirements falls into the non-designated beneficiary rules, which is the worst outcome and usually the result of drafting done before the SECURE Act.
If your trust was drafted before 2020 and names an IRA as a funding source, it needs review. Our trust planning team updates retirement account provisions specifically for the current rules.
Frequently Asked Questions
Can I roll an inherited IRA into my own IRA?
Only if you are the surviving spouse. Any other beneficiary must keep it as an inherited account.
Can I convert an inherited IRA to a Roth?
No. Non-spouse beneficiaries cannot convert an inherited IRA.
What if I missed distributions during the waiver years?
The IRS waived penalties for beneficiary distributions from 2021 through 2024. Requirements became enforceable in 2025.
Are inherited Roth IRAs subject to the 10-year rule?
Yes, the account must still be emptied within 10 years, but qualified distributions are tax-free, so deferring to year ten is often the better choice.
Plan the Ten Years Before Year Ten Arrives
The change here is a change in strategy, not just in paperwork. Under the old stretch rules, the best move was almost always to take the minimum and let the account grow. Under the 10-year rule, doing that concentrates a decade of taxable income into one year at the worst possible rates.
To coordinate an inherited IRA with your own tax situation and your broader plan, contact us to schedule an estate planning consultation. We advise families across Essex County and the Merrimack Valley, including Andover, North Andover, Reading, Wilmington, and Middleton, and can review how your estate plan names retirement account beneficiaries.