Under the old law, if you inherited an IRA from someone other than your spouse, you were generally required to take minimum distributions based on your own life expectancy by Dec. 31 after the year the original account owner died.Consider that a 22-year-old inheriting a $1 million IRA as a non-spouse beneficiary would be required to take a minimum distribution of $16,400 — 1.
Even though the beneficiary must take an annual distribution and pay taxes on it, he is still benefiting from decades of tax-deferred growth within the IRA. Now, these heirs have 10 years from the accountholder's death to liquidate the account, a move that can bring hefty tax bills upon withdrawal. There are exceptions to the 10-year withdrawal for surviving spouses, minor children, disabled or chronically ill beneficiaries and heirs who are no more than 10 years younger than the account owner.An alternative to the stretch that's making the rounds among tax experts is the so-called charitable remainder unitrust, which leaves assets to a charitable organization and pays a fixed annual percentage to a beneficiary.
Assets grow on a tax-deferred basis within the trust, while the beneficiary pays taxes on the income he or she receives.