IRS Issues Notice on SECURE Act 10-Year RMD Rule

When the SECURE Act was enacted into law at the end of 2019, one of the provisions required inherited IRAs to be liquidated over 10 years. The IRS has been working over the past two years to write the regulations that will implement this provision of the SECURE Act and provide guidance for inherited IRAs. The IRS released final guidance on October 7.

Importantly, the IRS regulations state that the beneficiary of the inherited IRA must take distributions each year for 10 years, rather than taking one distribution at the end of 10 years. The IRS also announced relief for individuals who failed to take a required minimum distribution (RMD) from an inherited account for 2021 and 2022 (relief for 2020 was included in the CARES Act). These provisions, which are summarized below, will go into effect for tax year 2023. 

Generally, for individuals or employees with accounts who die after December 31, 2019, the SECURE Act distinguishes between an “eligible designated beneficiary” and other beneficiaries who inherit an account or IRA. An eligible designated beneficiary includes a surviving spouse, a disabled individual, a chronically ill individual, a minor child, or an individual who is not more than 10 years younger than the account owner. Certain trusts created for the exclusive benefit of disabled or chronically ill beneficiaries are included. These eligible designated beneficiaries may take their distributions over the beneficiary's life expectancy. However, minor children must still take the remaining distributions within 10 years of reaching age 18. Additionally, a surviving spouse beneficiary may delay commencement of distributions until the later of the end of the year that the employee or IRA owner would have attained age 72, or the surviving spouse’s required beginning date.

Designated beneficiaries, who are not an eligible designated beneficiary, must withdraw the entire account by the 10th calendar year following the year of the employee or IRA owner’s post-2019 death. Non-designated beneficiaries must withdraw the entire account within 5 years of the employee or IRA owner’s death if distributions have not begun prior to death. For IRA distributions, see Publication 590-B, Distribution from Individual Retirement Arrangements (IRAs), or this chart of required minimum distributions to help calculate the required minimum distributions.

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The opinions voiced in this material are for general information only and are not intended to provide specific investment or tax advice or recommendations for any individual.

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