{"id":715,"date":"2021-08-11T11:38:58","date_gmt":"2021-08-11T17:38:58","guid":{"rendered":"http:\/\/gpswp.com\/ursadvisory\/?p=715"},"modified":"2021-08-11T11:45:30","modified_gmt":"2021-08-11T17:45:30","slug":"demystifying-the-new-10-year-rule-for-ira-beneficiaries-under-the-2019-secure-act","status":"publish","type":"post","link":"https:\/\/gpswp.com\/ursadvisory\/demystifying-the-new-10-year-rule-for-ira-beneficiaries-under-the-2019-secure-act\/","title":{"rendered":"Demystifying the New 10-Year Rule for IRA Beneficiaries Under the 2019 SECURE Act"},"content":{"rendered":"\n

In 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) repealed a key legacy planning provision that used to allow designated IRA beneficiaries to take inherited distributions over the course of their lifetime. Not only did this allow the money within the IRA to keep growing, but allowed the beneficiary to spread their tax liability on distributions out over time. Now, however, designated beneficiaries must distribute these IRAs within 10 years.<\/p>\n\n\n\n

But, 2020 returns raised some questions as to how this 10-year rule will work in practice, specifically in regards to RMDs. Unfortunately, publications released by the IRS this past year further complicated understanding. Word through the IRA grapevine is that the IRS will clear up any confusion in proposed RMD regulations that will be issued soon.[i]<\/a><\/p>\n\n\n\n

In the meantime, clarification on the following six points should be helpful.<\/p>\n\n\n\n
\n\n
\n \n
\n\n\n\n

Part I: The New Laws<\/strong><\/p>\n\n\n\n

1) The elimination of the stretch IRA[ii]<\/strong><\/a><\/strong><\/p>\n\n\n\n

A designated beneficiary is the person or trust positioned to inherit an IRA from an individual, once that individual passes. Before 2019, non-spousal beneficiaries had several options for taking distributions from the account. One popular option was taking required minimum distributions (RMDs) from the account based on the life expectancy of the beneficiary, especially if they were younger than the original account owner.[iii]<\/a><\/p>\n\n\n\n

By taking RMDs over their lifetime, beneficiaries could stretch the tax-deferred growth of the account. This strategy also offered the tremendous opportunity to preserve the asset and pass it on to the next generation. <\/p>\n\n\n\n

The Secure Act essentially eliminated the stretch IRA for most non-spousal beneficiaries for IRAs inherited on or after January 1, 2020. IRAs inherited prior to that date are still eligible to continue with RMDs as before.<\/p>\n\n\n\n

 2) The age of the owner at death is immaterial for a designated beneficiary[iv]<\/strong><\/a><\/strong><\/p>\n\n\n\n

The 10-year rule applies to a designated beneficiary regardless of the age at which the IRA owner dies. As a result, it is no longer necessary to determine the age of the IRA owner at the time of death for distribution purposes if the IRA owner died after 2019 and the beneficiary is a designated beneficiary.<\/p>\n\n\n\n

3) Distributions are optional until the end of year 10[v]<\/strong><\/a><\/strong><\/p>\n\n\n\n

For designated beneficiaries who are subject to the 10-year rule, distributions are optional until December 31 of the tenth year that follows the year in which the IRA owner dies.<\/p>\n\n\n\n

4)  10-year Rule applies to successor beneficiary of a pre-2020 beneficiary taking distributions over her life expectancy who dies after 2019[vi]<\/strong><\/a><\/strong><\/p>\n\n\n\n

If a designated beneficiary inherited an IRA before 2020 and was taking distributions over their life expectancy, their successor beneficiary would take distributions over what remained of their\u2014the designated beneficiary\u2019s\u2014life expectancy. However, this option to take distributions over what remained of the designated beneficiary\u2019s life expectancy applies only if the designated beneficiary died before 2020. If such a designated beneficiary dies after 2019, the successor beneficiary is subject to the 10-year rule. This 10-year period starts the year that follows the year in which the designated beneficiary dies.<\/p>\n\n\n\n

5) 10-year rule applies to successor beneficiary of \u201celigible designated beneficiary\u201d taking distributions over their life expectancy[vii]<\/strong><\/a><\/strong><\/p>\n\n\n\n

\u201cEligible designated beneficiary\u201d is a new category<\/em><\/strong> of beneficiary that was created under the SECURE Act and applies only to IRAs inherited after 2019. These beneficiaries are:<\/p>\n\n\n\n