The SECURE Act Exception: How Disabled Beneficiaries Can Still Stretch an Inherited IRA

The SECURE Act of 2019 eliminated the stretch IRA for most non-spouse beneficiaries. Under the new rules, most people who inherit an IRA or 401(k) must withdraw the entire balance within 10 years. That compressed timeline can push beneficiaries into higher tax brackets and significantly reduce the after-tax value of the inheritance.

But there is an important exception. Disabled beneficiaries qualify as "eligible designated beneficiaries" under the SECURE Act and can still stretch distributions over their life expectancy. For a 25-year-old with a disability inheriting a $500,000 IRA, the difference between a 10-year forced distribution and a 50-year stretch is enormous, both in tax savings and in the ability to preserve means-tested benefits like SSI and Medicaid.

This exception sits at the intersection of retirement planning and special needs financial planning. It is one of the most valuable planning tools available to special needs families, and it is frequently overlooked.

What the SECURE Act changed

Before 2020, any named beneficiary could stretch inherited IRA distributions over their own life expectancy. A young beneficiary could take small required minimum distributions (RMDs) each year, leaving most of the account to grow tax-deferred for decades.

The SECURE Act replaced that with the 10-year rule for most beneficiaries. All assets must be distributed by December 31 of the 10th year following the original owner's death. For large IRAs, that can mean tens of thousands of dollars per year in additional taxable income, potentially pushing the beneficiary into the 32% or 37% federal bracket.

The eligible designated beneficiary exception

The SECURE Act carved out five categories of "eligible designated beneficiaries" (EDBs) who can still use life-expectancy stretch distributions:

1. Surviving spouses
2. Minor children (until they reach the age of majority, then the 10-year clock starts)
3. Individuals not more than 10 years younger than the deceased
4. Chronically ill individuals
5. Disabled individuals

Categories 4 and 5 are where special needs planning intersects directly with retirement account strategy.

Who qualifies as "disabled" for this exception

The IRS uses Section 72(m)(7) of the Internal Revenue Code to define disability for this purpose. A person is disabled if they are "unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration."

In practice, this covers most people who receive SSI or SSDI due to disability. However, it is not limited to benefit recipients. Someone who meets the medical standard but has never applied for government benefits can still qualify. The key is medical documentation of the disability, not benefit receipt.

Chronically ill individuals, defined under Section 7702B(c)(2), also qualify. This covers people who are unable to perform at least two activities of daily living for at least 90 days, or who require substantial supervision due to a cognitive impairment.

How the stretch works

Once an individual qualifies as an EDB due to disability or chronic illness, they can take RMDs from the inherited IRA over their single life expectancy. The IRS Single Life Expectancy Table determines the annual distribution amount.

Example: A 30-year-old disabled beneficiary inherits a $500,000 traditional IRA. Their single life expectancy factor is approximately 55.3 years. The first-year RMD would be roughly $9,042 ($500,000 / 55.3). That is far less taxable income than the $50,000+ per year that a 10-year distribution would generate.

Over time, the remaining balance continues to grow tax-deferred. The annual RMD increases as the balance grows and the life expectancy factor decreases, but the tax impact each year stays manageable. This slower distribution schedule can mean:

• Lower marginal tax rates on each distribution
• More years of tax-deferred growth
• Smaller annual income that is less likely to disrupt SSI or Medicaid eligibility
• A larger total after-tax inheritance over the beneficiary's lifetime

The trust complication

Here is where the planning gets technical. Most families with a disabled dependent should not name the individual directly as IRA beneficiary. A direct beneficiary designation puts the inherited IRA in the disabled person's name, which could count as a resource and disqualify them from SSI (asset limit: $2,000) and Medicaid.

Instead, the IRA typically names a special needs trust as beneficiary. But not all trusts qualify for the stretch. The trust must meet IRS requirements to be treated as a "see-through" trust, meaning the IRS looks through the trust to the underlying beneficiary for purposes of applying the RMD rules.

See-through trust requirements

For the trust to qualify, four conditions must be met (per IRS regulations under Section 401(a)(9)):

1. The trust must be valid under state law.
2. The trust must be irrevocable (or becomes irrevocable at the account owner's death).
3. The beneficiaries of the trust must be identifiable from the trust document.
4. A copy of the trust (or a list of all beneficiaries with their entitlements) must be provided to the IRA custodian by October 31 of the year following the account owner's death.

Conduit trust vs. accumulation trust

This is where the choice gets consequential.

Conduit trust: All RMDs received by the trust must be distributed ("passed through") to the beneficiary in the same year. The distributions are taxed at the beneficiary's individual tax rate, which is usually lower than trust rates. However, the distributed funds are then in the beneficiary's hands. If the beneficiary is on SSI, the distributions count as unearned income and could reduce or eliminate benefits.

Accumulation trust: The trust retains the RMDs rather than distributing them. The retained funds are taxed at trust tax rates, which compress quickly: in 2026, trusts reach the 37% bracket at approximately $15,450 of income. The tax cost is higher, but the funds stay in the trust, protected from being counted as the beneficiary's assets for SSI/Medicaid purposes.

The choice depends on the beneficiary's situation:

• If the beneficiary is not on SSI (for example, they receive SSDI, which has no asset or income limit), a conduit trust may be preferable for the lower individual tax rates.
• If the beneficiary is on SSI and Medicaid, an accumulation trust is usually necessary to avoid benefit disruption, despite the higher tax rates.
• Some attorneys draft trusts with discretionary distribution provisions that allow the trustee to decide how much to distribute each year, providing flexibility.

This is a nuanced area that sits at the intersection of ERISA law, trust law, and special needs planning. The trust must be drafted by an attorney who understands all three.

Common mistakes

1. Naming the disabled person directly as IRA beneficiary. The inherited IRA becomes a countable asset, potentially disqualifying them from SSI and Medicaid. Always use a properly drafted SNT.

2. Using a trust that does not meet see-through requirements. If the trust fails the see-through test, the 10-year rule (or even the 5-year rule for accounts without designated beneficiaries) applies instead of the stretch. The trust document must be reviewed specifically for this purpose.

3. Failing to provide the trust documentation to the IRA custodian. The October 31 deadline in the year after death is easy to miss. If the custodian does not receive the trust information on time, the stretch may be lost.

4. Not considering the conduit vs. accumulation trade-off. Many attorneys default to conduit trusts because they are simpler to draft and produce lower tax bills. But for SSI recipients, distributing all RMDs to the beneficiary can eliminate benefits that are worth far more than the tax savings.

5. Ignoring the stretch entirely. Some advisors and families do not realize the exception exists. They assume the 10-year rule applies to everyone and plan accordingly, missing a major tax and benefit preservation opportunity.

What this looks like in a financial plan

For a family whose estate plan includes a large IRA and a disabled dependent, the SECURE Act exception should be part of the strategy from the beginning. The steps:

1. Confirm the beneficiary meets the IRS definition of disabled or chronically ill.
2. Work with a special needs attorney to draft an SNT that qualifies as a see-through trust.
3. Decide between conduit and accumulation provisions based on the beneficiary's current and expected benefit status.
4. Name the SNT as primary beneficiary on the IRA/401(k).
5. Provide the trust document to the IRA custodian after the account owner's death (before the October 31 deadline).
6. Coordinate the stretch distributions with other income sources (SSI, SSDI, ABLE, trust distributions) to minimize taxes and preserve benefits.

The math on this can be significant. A $500,000 IRA stretched over 50 years instead of depleted in 10 can produce substantially more after-tax wealth, especially when the tax savings are reinvested within the trust or an ABLE account.

For the tax implications of trust distributions and stretch IRAs, see Tax Strategies for Special Needs Families. For how IRA distributions interact with SNT distributions and benefit preservation, see minimizing income taxes with IRA distributions to special needs trusts. For guidance on selecting the right trustee to manage these distributions, see How to Choose a Trustee for Your Special Needs Trust.

Why this matters now

Many families of children with disabilities are in their peak accumulation years, building retirement savings in IRAs and 401(k)s. These accounts may represent the largest single asset in the estate. How those accounts transfer at death, whether through a 10-year forced distribution or a life-expectancy stretch, can be the difference between a trust that lasts the beneficiary's lifetime and one that runs dry in a decade.

Planning for this now, while the parents are alive and can coordinate with their attorney and financial advisor, is far more effective than trying to fix it after the fact.

If you are uncertain about how the SECURE Act exception applies to your family or how to structure retirement account beneficiary designations for a disabled beneficiary, start a conversation with us.

This article is for educational purposes only and does not constitute legal or tax advice. Tax rules and SECURE Act regulations are subject to change. Work with a qualified estate planning attorney and financial advisor experienced in special needs planning before making decisions about retirement account beneficiary designations. All figures reflect 2026 rules.