When the Setting Every Community Up for Retirement Enhancement (SECURE) Act was passed in 2019, it included several provisions concerning IRAs and required minimum distributions (RMDs). However, many beneficiaries were unsure how to navigate the new legislation as these changes lacked specific guidance. In February of this year, the IRS released Proposed Regulations to provide guidance:
SECURE Act Updates
Several key changes were included in the SECURE Act, which apply to traditional IRAs, SEP IRAs, SIMPLE IRAs, 401(k), 403(b) and 457(b) plans and profit-sharing plans. These updates include:
- The required beginning date for RMDs was changed to April 1 of the year following the calendar year the owner attains age 72, but only for account owners who turned age 70 on or after July 1, 2019.
- For inherited IRAs with owners who passed away on or after January 1, 2020, full distribution must be made within 10 years of the owner’s death for designated beneficiaries rather than over the designated beneficiaries life expectancy.
- Distributions for eligible designated beneficiaries can be made over the beneficiary’s life expectancy or the 10-year rule (if owner passed away before required beginning date (RBD)).
IRS Proposed Regulations
Proposed regulations by the IRS clarified a few areas, including:
- If the owner passed away on or after RBD, withdrawals must be distributed at least as rapidly as the decedent’s RMD schedule.
- Designated beneficiaries who are not eligible designated beneficiaries must take an RMD each during the 10-year period, with a full distribution by the end of the 10th calendar year following owner’s death.
Beneficiary Definitions
- Beneficiary – Any party that inherits an IRA. Named on the beneficiary form or determined to be the beneficiary.
- Designated beneficiary – A beneficiary who is an individual.
- Eligible designated beneficiary – A designated beneficiary who is one of the following:
- The surviving spouse of the owner
- A child of the owner who has not reached maturity.
- Disabled
- Chronically ill
- Does not fall under the above and is not more than 10 years younger than owner
- Non-designated beneficiary – Any beneficiary that is not a designated beneficiary (a non-individual)
Key Takeaway
These proposed regulations have not been finalized. The comment period concerning the proposed regulations closed on May 25, and public hearings were scheduled for June 15. We are expecting that these regulations will be issued as final in the near future.
Most practitioners were surprised by these regulations in that the language of the SECURE Act only required that an inherited IRA be fully withdrawn within 10 years – without any mention of an RMD during that period. The final regulations, when issued, may change that and/or provide relief for beneficiaries who may have been required to take an RMD in 2021 but failed to.
The SECURE Act and the Proposed Regulations also made changes to distribution rules for other types of retirement plans. A discussion on those changes is beyond the scope of this alert.
For more in-depth information on RMDs for IRAs, see the IRS page on the matter. As these guidelines are evolving, check back for more information. If you have questions about IRAs, RMDs, RBDs, beneficiaries or any other subject relating to this matter, contact a member of our team today.