Name a Charitable Remainder Trust as Your IRA Beneficiary and Your Kids Get Income for 20 Years Instead of a 10-Year Drain. Section 664 Is the Stretch IRA Congress Didn’t Kill, and Charity Gets What’s Left
Congress killed the stretch IRA in 2019, but a 55-year-old provision buried in the tax code still lets your heirs spread inherited IRA income across two full decades while keeping their tax brackets out of the danger zone.
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Leave a $1 million traditional IRA to an adult child and the tax code starts a clock. Federal rules require most non-spouse heirs to empty the account by December 31 of the year containing the 10th anniversary of the owner’s death. Every withdrawal lands on top of the heir’s salary, often during their peak earning years.
One provision still lets you spread those dollars across two decades. It lives in Section 664 of the Internal Revenue Code, the charitable remainder trust rules Congress wrote in 1969. Name a charitable remainder trust (CRT) as your IRA beneficiary and your kids can collect income for up to 20 years. A charity gets whatever is left at the end.
Section 664 Offers an Alternative to the Stretch IRA
For most heirs, the lifetime “stretch” ended with 2019 SECURE Act. The only people who keep it are the owner’s surviving spouse, the owner’s minor child, a disabled individual, a chronically ill individual, or any other individual who is not more than 10 years younger than the IRA owner. Healthy adult children fall under the 10-year rule.
A CRT gets around that. At your death the IRA pays its entire balance to the trust, and the code says a charitable remainder unitrust shall, for any taxable year, not be subject to any tax. The lump sum arrives whole, with no income tax taken at the trust level.
The trust then pays your kids a fixed percentage, not less than 5% nor more than 50% of its value, recalculated every year. Payments run for a term of years (not in excess of 20 years) or for the life or lives of the beneficiaries. When the term ends, the remainder goes to charity.
How a $1 Million IRA Plays Out Under Each Path
Consider a hypothetical single heir earning $120,000 a year who inherits a $1 million IRA in 2026. Assume the money earns 7% a year and the heir takes the 2026 standard deduction of $16,100.
| Item | 10-Year Drain | 20-Year CRT (5% Unitrust) |
|---|---|---|
| Year-one payout | $142,378 (level withdrawals) | $50,000 |
| Heir’s taxable income, year one | $246,278 | $153,900 |
| Top federal bracket reached | 32% | 24% |
| Final-year payout | $142,378 | $72,841 |
| Total gross paid to heir | $1,423,775 | $1,214,868 |
| Left to charity | $0 | $1,485,947 |
In 2026 the 32% rate kicks in on single income over $201,775. Under the 10-year rule, about $44,503 of the heir’s income gets taxed at 32% every year. Under the CRT, all of it stays in the 24% bracket, and the payments grow as the trust grows.
Your Heirs Still Owe Tax on Every Check
Your heirs owe income tax on every payout they receive. Section 664(b) taxes payouts in levels, first, as amounts of income other than capital gains. IRA money is ordinary income, so the early checks are taxed at ordinary rates. Capital-gains treatment shows up only after that pool runs out.
What your kids gain is time. The pretax money compounds inside a tax-exempt shell for 20 years instead of 10, and they pay tax only as the checks arrive. The 10-year rule is one of several IRS provisions that quietly drain inherited retirement accounts, and we outlined the rest in a free guide to the traps retirees and their heirs keep stepping into.
A 10% Charity Test Can Sink the Plan
Each CRT must pass a test: the value of the charity’s remainder, determined under section 7520, must be at least 10% of what goes in. A 5% payout over 20 years tops it easily. Pair a high payout with young heirs on a lifetime trust and the plan can fail.
Interest rates feed that calculation. The 10-year Treasury yield stood at 5.24% on October 9, 2026. Higher rates generally make the test easier to pass, especially for fixed-dollar annuity trusts.
Who Comes Out Ahead and Who Loses Money
Under these assumptions, the direct inheritance pays the heir more in gross dollars. A CRT reduces what your kids receive in exchange for lower tax brackets, regular checks they can’t blow through, and a large gift to charity. If you pick a lifetime trust and an heir dies young, the charity gets more of the money.
The CRT works best when three things are true: the IRA is large, the heirs earn high incomes, and you already plan to leave money to charity. Your estate also gets a charitable deduction for the remainder’s value, though few families top the 2026 estate exclusion of $15,000,000.
Three Moves to Make While You Can Still Change Them
- Draft the trust first. An attorney has to write a CRT that meets Section 664 to the letter. Then name it on the IRA custodian’s beneficiary form, which overrides your will.
- Choose term versus life carefully. A 20-year term keeps paying a child’s estate if the child dies early. A lifetime trust can run longer but stops at death.
- Split the account. Naming the CRT for part of the IRA and your children for the rest gives you both tax deferral and a direct inheritance.
Beneficiary designations, payout rates and the 10% test all depend on your specific numbers, so this is math worth running with an estate tax attorney and a fiduciary CPA before the form is signed.
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Vilma Rios is a tax professional and tax content contributor with more than 15 years of experience in tax and accounting. She specializes in federal tax research, tax education, and translating complex tax rules into clear, practical information for individuals, families, and small-business owners.
Vilma is a Content Tax Contributor II with the National Association of Tax Professionals (NATP), where she contributes to tax education and professional content. She has also presented tax information through webinars, including Spanish-language tax education, and has appeared on Telemundo 47 discussing tax topics and helping viewers understand important tax-filing requirements.
Her experience also includes tax and accounting work, tax research, IRS-related matters, and public tax education. While in college, Vilma volunteered in an IRS-sponsored tax assistance program and was recognized for her community service by local and state officials.
Known as “Your Tax Geek,” Vilma is passionate about making taxes easier to understand and helping people navigate an increasingly complex tax system.
