Inherited IRA
Models an inherited traditional IRA as a dedicated asset — tracks the balance separately from the beneficiary's own accounts, calculates required distributions under the rule that applies to that beneficiary, and deducts distributions from the balance each year. Covers the SECURE Act 10-year rule, life expectancy stretch, a surviving spouse's recalculated single life expectancy, and the 5-year rule and ghost life expectancy that apply to an estate, charity, or trust — in both the post-SECURE and pre-SECURE (death before 2020) regimes.
How it works
Stratum models inherited IRAs as a dedicated asset type, separate from the beneficiary's personal tax-deferred accounts (Traditional IRA, 401k, etc.). The advisor enters the inherited IRA on the Base Data tab with the current balance, the owner (client or co-client), the year it was inherited, and who the beneficiary is. From there, the system calculates required distributions each year, deducts them from the inherited IRA balance, and recognizes them as ordinary income. Distributions are not reinvested; the inherited IRA is a pure draw-down vehicle. The advisor selects facts, not rules. Rather than asking whether the beneficiary is an Eligible Designated Beneficiary (EDB) — a legal conclusion that depends on when the owner died — Stratum asks who the beneficiary is (surviving spouse, minor child, disabled or chronically ill individual, someone not more than 10 years younger than the owner, any other individual, or an estate/charity/trust) and derives the rest. The regime is derived too: deaths on or before December 31, 2019 are governed by the pre-SECURE rules and deaths from January 1, 2020 by the SECURE Act. A beneficiary who was stretching before the SECURE Act continues to stretch for life — that grandfathering is modeled by entering the true historical year of death. Stratum then applies one of four distribution schedules: a fixed-term life expectancy stretch (Single Life Table, reduce-by-one), a recalculated stretch (surviving spouse only), ghost life expectancy over the deceased owner's remaining life expectancy, or no annual distributions with a hard deadline (the 5-year and 10-year rules). The rule Stratum will apply is displayed in plain language on the account configuration screen before the advisor saves.
1. Enter the Inherited IRA
Add the inherited IRA as a separate account on the Base Data tab — do not roll it into the beneficiary's own tax-deferred total. Set the account type to Inherited IRA, specify the owner (client or co-client), and enter the current balance. Then open the account's detail screen to enter the distribution rules.
Example: Client inherited a $400k Traditional IRA from a parent. Enter: Account type = Inherited IRA, Owner = Client, Balance = $400,000.2. Enter the Year Inherited — Use the Actual Year of Death
The year inherited does two jobs: it starts the distribution clock and it determines which regime applies. Enter the TRUE year the original owner died, even if that was decades ago. Stratum decrements the life expectancy divisor by one for every year that has elapsed since, so entering the projection start year instead of the real year of death restarts the schedule and understates required distributions — often by a wide margin. A pre-2020 year is expected and correct for a grandfathered stretch.
Example: Client inherited from a sibling who died in 2015 and has been taking stretch distributions ever since. Enter 2015 — not the current projection year. The divisor is now ten years into its decline, producing a much larger required distribution than a freshly started stretch would.3. Select the Beneficiary
Choose the category that is factually true of the beneficiary. Stratum derives whether that makes them an Eligible Designated Beneficiary and which schedule follows. • Surviving spouse (kept as an inherited IRA) — recalculated single life expectancy, and the first distribution may be deferred to the year the original owner would have reached RMD age. Only select this if the spouse kept the account as inherited; a spouse who rolled it into their own IRA should not have an inherited IRA entered at all. • Minor child of the original owner — life expectancy stretch. • Disabled or chronically ill individual — life expectancy stretch. • Individual not more than 10 years younger than the owner — life expectancy stretch. • Any other individual — 10-year rule (post-SECURE) or lifetime stretch (pre-SECURE). • Estate, charity, or trust — 5-year rule or ghost life expectancy, in both regimes.
Example: Client's parent died in 2024 and the client is 30 years younger. Select 'Any other individual' — the 10-year rule applies.4. Answer the RMD and Owner Birth Year Questions
Whether the original owner had started RMDs before death determines whether annual distributions are required inside the 10-year window, and whether an estate/charity/trust gets the 5-year rule or ghost life expectancy. The original owner's birth year is requested for a surviving spouse (optional — it enables the deferred start) and for an estate/charity/trust where the owner had started RMDs (required — ghost life expectancy is computed from the owner's age at death).
Example: Owner born 1948, died 2024 at age 76, IRA left to their estate. Enter owner birth year 1948 — ghost life expectancy runs off the Single Life Table factor for age 76 (11.5).5. Distribution Calculation
Stratum applies one of four schedules. Fixed-term stretch: the Single Life Table (IRS Publication 590-B, Table I) divisor is looked up once at the beneficiary's age in the first distribution year, then reduced by exactly 1.0 each year thereafter. Because the lookup uses the current table, this also implements the post-2021 table transition correctly for a stretch that began earlier. Recalculated stretch (surviving spouse only): a fresh Single Life Table lookup at the spouse's attained age every year, with no reduce-by-one. The divisor stays larger than the fixed-term method would give, and the two diverge more each year. Ghost life expectancy: the Single Life Table factor for the deceased owner's age in their year of death, reduced by 1.0 per year. The owner's clock starts in the year of death, so the first distribution year is already one year in. The beneficiary's own age is irrelevant. Deadline-only (5-year and 10-year rules): no annual distribution is required; the full remaining balance is distributed in the deadline year. Under the 10-year rule, annual distributions ARE additionally required in years 1–9 if the original owner had started RMDs.
Fixed-term stretch: Distribution = Beginning Balance / (Table I factor at age in first distribution year − years elapsed) Recalculated stretch: Distribution = Beginning Balance / Table I factor at attained age Ghost life expectancy: Distribution = Beginning Balance / (Table I factor at owner's age at death − years since death) 5-year rule: no annual distribution; full balance in year 5 10-year rule: full balance in year 10, plus fixed-term annual distributions in years 1–9 if the owner had started RMDs
Example: Beneficiary age 60 in the first distribution year, Table I factor 24.9, balance $400k. Annual distribution = $400,000 / 24.9 = $16,064. Ten years later the divisor is 14.9 and the same balance would require $26,846.6. Balance Deduction
Each year's distribution reduces the inherited IRA balance. The account continues to earn investment returns on the remaining balance between distributions. Distributions are not reinvested back into the inherited IRA — the account depletes over the distribution period.
Ending Balance = (Beginning Balance x (1 + Investment Return)) - Annual Distribution
Example: Beginning balance $400k, 7% return, $16,064 distribution. Ending balance = ($400k x 1.07) - $16,064 = $411,936.7. Reinvestment Modeling (Optional) — Two Paths
If the advisor wants to show the client reinvesting distributions rather than spending them, there are two paths. Path 1: Base Data contributions to a taxable account — appears in BOTH the Base case and the Strategic case, so the reinvestment is always modeled regardless of strategy choices. Path 2: Strategic Contributions strategy with a manual rule targeting the taxable account — appears ONLY in the Strategic case, so the Base case shows the distribution as spent income while the Strategic case shows it reinvested. Use Path 1 when reinvestment is part of the client's baseline plan; use Path 2 when reinvestment is a strategic choice being compared against spending.
Example: Path 1 (baseline reinvestment): On Base Data tab, add taxable account contribution of $16,064/year for years 2026–2035. Both Base and Strategic cases reflect reinvestment. Path 2 (strategic reinvestment): Enable Strategic Contributions strategy, add manual rule — Taxable account, client owner, $16,064/year, 2026–2035. Base case shows distribution consumed; Strategic case shows reinvestment.
Real-world context
Which Rule Applies — the Beneficiary Matrix
Three facts determine the distribution schedule: when the original owner died, who the beneficiary is, and whether the owner had started RMDs. WHEN THE OWNER DIED. The SECURE Act applies to deaths from January 1, 2020. Deaths on or before December 31, 2019 remain under the pre-SECURE rules, and a beneficiary who was stretching then continues to stretch for life — the SECURE Act did not disturb schedules already running. In Stratum this is handled entirely by entering the true year of death. REQUIRED BEGINNING DATE (RBD). April 1 of the year after the original owner reached their RMD start age. That age was 70½ pre-SECURE; it is 72 for those born 1950 or earlier, 73 for 1951–1959, and 75 for 1960 or later. THE MATRIX. • Surviving spouse who keeps the account as inherited — recalculated single life expectancy in both regimes, with distributions deferrable until the year the owner would have reached RMD age. A spouse who instead rolls the account into their own IRA should not be entered as an inherited IRA at all. • Minor child of the owner, disabled or chronically ill individual, or an individual not more than 10 years younger than the owner — these are the Eligible Designated Beneficiaries. Life expectancy stretch, fixed-term. Where the owner died before RBD they may instead elect the 10-year rule; where the owner died after RBD the stretch is mandatory. • Any other individual — post-SECURE, the 10-year rule: the full balance must be out by the end of year 10, with annual distributions additionally required in years 1–9 if the owner had started RMDs. Pre-SECURE, the same person was simply a designated beneficiary and stretched for life; the 10-year rule did not exist. • Estate, charity, or non-see-through trust — not a designated beneficiary, so the 10-year rule never applies. If the owner died before RBD, the 5-year rule: nothing required until the full balance comes out by the end of year 5. If the owner died on or after RBD, ghost life expectancy: annual distributions over the owner's own remaining life expectancy, which continue indefinitely rather than hitting a cliff.
IRS reference: IRC §401(a)(9); IRS Publication 590-B Appendix B Table I; SECURE Act §401; SECURE 2.0 Act §107
Why a Surviving Spouse Is Different
Every beneficiary except a surviving spouse uses the fixed-term method: look the divisor up once, then subtract 1.0 every year. A surviving spouse who keeps the account as an inherited IRA is the only beneficiary permitted to recalculate — a fresh Single Life Table lookup at their attained age each year. The difference compounds. A spouse who starts at age 63 has a divisor of 22.1. Ten years later, recalculation gives the age-73 factor of 13.7, while the fixed-term method would have ground down to 12.1 — a required distribution roughly 13% larger. Twenty years in, the gap is far wider, because the fixed-term divisor marches toward zero while the table's own factors flatten out. This matters for entry accuracy: selecting the wrong beneficiary category for a spouse does not just mislabel the account, it changes the required distribution in every projection year. The spouse can also defer their first distribution until the year the original owner would have reached RMD age — useful when the owner was materially younger than the spouse. Enter the original owner's birth year to model this; without it, distributions begin the year after death.
Ghost Life Expectancy — When an Estate or Charity Inherits
When an IRA passes to an estate, a charity, or a trust that does not qualify as a see-through trust, there is no 'designated beneficiary' in the tax sense. The 10-year rule does not apply — it is a rule for designated beneficiaries. If the owner died before their Required Beginning Date, the 5-year rule governs: no annual distribution is required, and the entire balance must be out by the end of the fifth year after death. If the owner died on or after their RBD, distributions run over what is often called the owner's 'ghost' life expectancy — the remaining single life expectancy they themselves would have had, reduced by one each year. The beneficiary's own age is irrelevant. This frequently produces a LONGER payout period than the 10-year rule would, which surprises advisors who assume a non-designated beneficiary is always the worst outcome. An owner who died at 76 has a ghost life expectancy of 11.5 years — a slower drawdown than the 10-year cliff. Because the schedule depends entirely on the owner's age at death, Stratum requires the original owner's birth year for this case.
IRS reference: IRC §401(a)(9)(B); IRS Publication 590-B
Distributions Are Not Reinvested — Two Modeling Paths
When the system distributes from an inherited IRA, those proceeds go to the beneficiary as taxable income. Stratum models the tax impact of the distribution but not the destination of the proceeds. The client may spend the distributions, invest them in a taxable account, or apply them elsewhere — that decision is outside the model. Advisors who want to show reinvestment have two paths: Path 1 — Base Data contributions (baseline reinvestment): Add a taxable account contribution on the Base Data tab matching the distribution schedule. Appears in BOTH Base and Strategic cases. Use when reinvestment is assumed as part of the client's baseline plan. Path 2 — Strategic Contributions strategy (strategic reinvestment): Enable the Strategic Contributions strategy and add a manual contribution rule targeting the Taxable account, with owner, dollar amount, and year range matching the expected distribution schedule. Appears ONLY in the Strategic case. Use when reinvestment is a strategic choice being compared against spending the distributions. The Strategic Contributions strategy is the right tool when the advisor wants the Base vs. Strategic comparison to isolate the value of reinvestment.
Using Structured Withdrawals to Accelerate Distributions
The required minimum from an inherited IRA is a floor, not a ceiling. The Structured Withdrawals strategy allows an advisor to draw more than the required minimum from the inherited IRA in low-income years. This is particularly useful for clients subject to the 10-year rule who would otherwise face a large, concentrated distribution in year 10 — often in a high-income year. It applies equally to the 5-year rule, where the concentration risk is worse because the same balance is compressed into half the time. By front-loading distributions in years when the client is in a lower bracket, the advisor can smooth taxable income across the distribution period and reduce the total lifetime tax cost. To model this, enable the Structured Withdrawals strategy and configure a manual withdrawal rule with 'Inherited IRA' tax treatment. The required minimum is always honored first; SW draws the accelerated amount on top of it.
What drives the result
The opening balance determines annual distribution amounts for the full distribution period. A larger balance means larger annual distributions and more taxable income per year — which can push the beneficiary into higher brackets, increase IRMAA exposure, and increase the taxable portion of Social Security.
$600k inherited IRA at age 60 (factor 24.9) produces $24,096/year; $400k produces $16,064/year
Sets both the distribution clock and the regime (pre-SECURE at 2019 or earlier, SECURE from 2020). For any stretch schedule the divisor is decremented once per elapsed year, so entering a later year than the actual death understates every future distribution. For deadline-based rules it moves the year the full balance is forced out.
A stretch that began in 2016 at age 66 (factor 19.4) has a 2026 divisor of 9.4. Entering 2025 as the inheritance year instead restarts it at 11.5 — understating the required distribution by about 18%
Selects the distribution schedule. A stretch spreads distributions over the beneficiary's life expectancy — typically 20–35 years. The 10-year rule forces the entire balance out within 10 years, and the 5-year rule within 5, producing far more concentrated taxable income. A surviving spouse gets the recalculated method, which produces smaller distributions than any other category at the same age. The choice has a substantial lifetime tax impact.
$400k inherited at age 55 (factor 29.9) — stretch produces $13,378/year, versus the 10-year rule forcing roughly triple that, or the 5-year rule roughly six times
For a 10-year-rule beneficiary, determines whether annual distributions are required in years 1–9 or whether the whole balance can be deferred to year 10. For an estate, charity, or trust it selects between the 5-year rule and ghost life expectancy — two very different payout periods.
Estate beneficiary, owner died at 76: 'Yes' gives ghost life expectancy over 11.5 years; 'No' gives the 5-year rule — more than twice the annual income concentration
For a surviving spouse, enables deferring the first distribution to the year the owner would have reached RMD age — potentially years of deferred income. For an estate, charity, or trust where the owner had started RMDs, it is required: ghost life expectancy is computed entirely from the owner's age at death.
Spouse born 1965 inherits in 2023 from an owner born 1955. Distributions defer to 2028 (when the owner would have turned 73) rather than starting in 2024 — five years of deferral
For life expectancy methods, younger beneficiaries have larger divisors, meaning smaller required distributions each year and a longer draw-down period. Older beneficiaries have smaller divisors and larger required distributions. Beneficiary age has no effect at all under the 5-year rule, the pure 10-year rule, or ghost life expectancy.
Age 50 factor 34.9 (2.9% of balance per year); age 70 factor 16.0 (6.3% per year)
Allows the advisor to draw more than the required minimum from the inherited IRA in low-income years. Accelerating distributions into lower-bracket years reduces the risk of a large forced distribution in a high-income year, lowering lifetime taxes.
Client in a low-income year accelerates inherited IRA distribution from $16k required to $40k — filling bracket headroom rather than deferring income into a higher-bracket year later
Assumptions
- Distributions are 100% ordinary income (pre-tax inherited traditional IRA — no basis adjustment)
- No early withdrawal penalty applies (IRC §72(t)(2)(A)(ii) exemption for inherited IRAs)
- The beneficiary's own RMD age (73 or 75) does not affect the inherited IRA distribution clock — the inherited IRA runs on its own schedule
- Ages and years are handled at birth-year granularity, consistent with the rest of the projection engine. Two boundaries this cannot resolve exactly: the Required Beginning Date falls on April 1 of the year after the owner reaches RMD age, and the pre-SECURE RMD age was 70½ rather than a whole year. Where the derived answer is wrong for a specific client, set the 'Had the original owner started RMDs before death?' answer explicitly — it always overrides
- A surviving spouse's deferred start is anchored to the year the original owner would have attained RMD age (70 pre-SECURE; 72, 73, or 75 post-SECURE by the owner's birth year)
- No contributions may be made to an inherited IRA
- Inherited traditional IRAs cannot be converted to Roth
- QCDs are not permitted from inherited IRAs — they do not satisfy the distribution requirement and do not reduce AGI
- States with retirement income exemptions treat inherited IRA distributions the same as the beneficiary's own IRA distributions — the state exemption applies automatically because distributions flow as the ira-distributions income type
Limitations
- Stratum does not determine which distribution rule applies — the advisor selects the beneficiary category and answers the RMD question, and Stratum derives the schedule from those facts. The derived rule is displayed in plain language on the account screen before saving
- The 'greater of' rule is not modeled. Where the original owner died on or after their Required Beginning Date and the beneficiary is OLDER than the owner, the applicable life expectancy may be the owner's rather than the beneficiary's. Omitting it makes Stratum overstate required distributions for that (uncommon) case — the beneficiary must be older than the deceased owner for it to apply at all
- A minor child of the original owner is modeled as a lifetime stretch. The post-SECURE hybrid — stretch until age 21, then a 10-year clock — is not modeled, so distributions for a minor-child beneficiary are understated in the years after they reach 21
- Successor beneficiaries are not modeled. An account inherited from another beneficiary (rather than from the original owner) continues the original beneficiary's schedule rather than starting a new clock, and Stratum has no way to represent that. Entering it as a normal inherited IRA produces a schedule that looks plausible but is wrong
- The SECURE 2.0 §327 election for a surviving spouse to be treated as the deceased owner (using the Uniform Lifetime Table instead of the Single Life Table) is not modeled
- The 10% early withdrawal penalty is not modeled — this is correct, because IRC §72(t)(2)(A)(ii) unconditionally exempts inherited IRA distributions from the penalty regardless of the beneficiary's age
- Inherited IRAs are excluded from Structured Withdrawals auto-mode gap-filling and from Base case withdrawal methodology (rate or target-income). Only mandatory distributions run automatically — to force additional distributions, use SW manual withdrawal rules with 'Inherited IRA' tax treatment
Related
This page explains how Stratum models this calculation. It is educational material for financial professionals, not tax or legal advice, and tax law changes. Verify current figures against primary IRS sources before relying on them with a client.