We'd like to remind you about the changes to IRAs within the SECURE Act also known as the Setting Every Community Up for Retirement Enhancement Act of 2019.
The SECURE Act changed the rules for IRAs inherited after 2019 by upgrading the 5-year rule to 10-years. This rule is effective for IRAs inherited after 2019 and also removes the option that allowed designated beneficiaries to take distributions over their life expectancies. Below is a breakdown of what this means.
1. Age of IRA owner at death is now immaterial for a designated beneficiary
The 10-year rule applies to a designated beneficiary regardless of the age at which the IRA owner dies. This means, it is no longer necessary to determine the age of the IRA owner at the time of death for distribution purposes when the IRA passes to a designated beneficiary.
2. Distributions are optional until the end of year 10
As briefly mentioned above, the only change that the SECURE Act made to the 5-year rule was to extend it to 10 years for designated beneficiaries. Therefore, for designated beneficiaries who are subject to the 10-year rule, distributions are optional until December 31st of the tenth year following the year the IRA owner dies.
3. 10-year rule applies to successor beneficiary
In the past, if the designated beneficiary inherited an IRA and chose to use life expectancy for their distributions, the successor beneficiary would take distributions over what remained of the designated beneficiary’s life expectancy. This only applies if the designated beneficiary died before 2020. If the designated beneficiary died during 2020 or later the successor beneficiary is now subject to the 10-year rule.
4. 10-year rule applies to successor beneficiary of an eligible designated beneficiary
An eligible designated beneficiary is: a surviving spouse of the IRA owner; a child of the IRA owner who has not reached the age of majority; a disabled individual; a chronically ill individual; an individual who is not more than 10 years younger than the IRA owner. An eligible designated beneficiary is still able to take distributions over their life expectancy, however any successor beneficiary would again be subject to the 10-year rule.
5. IRA inherited by beneficiary who is a minor
If the eligible designated beneficiary is a minor child of the IRA owner, they are eligible to take distributions over their life expectancy. The successor beneficiary would then be subject to the 10-year rule. This applies only if the minor child dies before reaching the age of majority. Additionally, a minor child of the IRA owner will have their distribution option switched from the life expectancy option to the 10-year rule when the minor child reaches the age of majority.
At Curran we value service over sales and believe quality service yields happy clients. Below is our 4-step process (the first three steps at no cost to you).
A short introductory call for us to get to know one other. During this call we will discuss your financial goals, concerns and hopes for the future.
In this meeting we will go over your current financial situation, take a deeper look at your goals, discuss your risk tolerances, and collect the data necessary to build a formal proposal.
Based on our data gathering session, our Private Wealth Managers will present you with a custom proposal tailored to your needs. We encourage individuals to take the time to evaluate this proposal.
If you are comfortable with the proposal and choose to invest with Curran, our team will be there every step of the way assisting in opening the recommended accounts and facilitating all necessary parts of your onboarding process.