In this webinar Tully Rinckey’s Senior Associate, Jason Snyder provides an overview of the SECURE Act and the considerations to have as an account holder and beneficiary.

Topics Include:
– Overview of SECURE Act
– IRA Inheritance Changes
– Considerations for the account holder
– Considerations for the beneficiary…(read more)

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The SECURE Act is a retirement reform bill that was signed into law in December 2019. One of the significant changes introduced by the SECURE Act is the alteration of the rules regulating individual retirement accounts (IRAs) inheritance.

Before the SECURE Act, designated beneficiaries of an IRA account would withdraw the inherited funds from the IRA over their lifetime. That enabled more tax-deferred growth on the IRA funds and lessened the income tax cost of withdrawing the funds.

However, under the new rules, the bulk of IRA beneficiaries will be required to distribute the funds within ten years of the owner’s demise. Since inherited IRA distributions are no longer spread over the beneficiary’s lifespan, this could result in larger taxable distributions over a shorter period, leading to an increase in income tax costs for beneficiaries.

There are, however, some exceptions to the ten-year rule. Eligible beneficiaries, known as ‘eligible designated beneficiaries,’ can still take withdrawals over their lifetime, and the ‘five-year rule’ is still applicable to non-designated beneficiaries.

Eligible designated beneficiaries include:

– Surviving spouses
– Minor children of the account holder (until they reach the legal age of majority)
– Disabled beneficiaries
– Chronically ill beneficiaries
– Beneficiaries not more than ten years younger than the account owner.

Surviving spouses can still take the inherited IRA as their own account and continue to withdraw it over their lifetime, prolonging the tax-deferred growth. The remaining eligible designated beneficiaries can still withdraw the inherited funds over their life expectancy, which lessens the income tax cost of the distributions.

Under the five-year rule, non-designated beneficiaries will have five years from the year after the account owner’s demise to distribute the inherited IRA. That means those beneficiaries will need to take the full distribution within five years of the account owner’s passing.

These new IRA inheritance rules under the SECURE Act highlight the significance of intentional estate planning and clearly designating beneficiaries for your retirement accounts. The changes could affect your heirs’ tax planning, and it’s essential to seek advice from a competent financial advisor or tax professional to understand your options.