The SECURE Act 2.0 impacted the rules governing Inherited IRAs, essentially requiring most non-spouse beneficiaries who inherit retirement assets to draw down the balance in ten years.

Here, we review the new rules and the different strategies you may choose to employ to draw down the assets, which include:
-Straight Line Method
-Maximize Employer retirement account Contribution Method
-Tax Minimization Method
-Bonus: Inherited Roth IRA Method

For a written version of this content, with example scenarios, read our blog post on the topic:

Looking for professional advice about your inherited IRA? Have other financial concerns? Schedule a free, no-obligation call to see if we can help:

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Resilient Asset Management is a financial advisory firm registered in the State of Tennessee. This information is provided for educational purposes and should not be considered tax, legal, or financial advice. Individual situations vary and this information is not intended to indicate suitability for any particular investor.

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Recently, the SECURE Act introduced new inherited IRA rules that have affected individuals who have inherited an IRA account. These rules have tax implications and require careful consideration before taking any action. Here’s what you need to know about the new inherited IRA rules and what you should do with your inherited IRA.

The SECURE Act: What it is

The SECURE Act is a retirement reform bill that became law in December 2019. The goal of the bill is to promote retirement savings and provide more options for Americans to plan for their future.

One of the primary changes introduced by the SECURE Act was how inherited IRA accounts are treated. Previously, the beneficiary of an Inherited IRA could take distributions over their lifetime, based on their life expectancy. However, under this new law, Beneficiaries are required to take the entire distribution of the inherited IRA within ten years of inheriting the account, which could have significant tax implications.

Understanding the new inheritance IRA rules

The new rules apply to beneficiaries who inherited an IRA from an individual who died after December 31, 2019. Beneficiaries of traditional IRAs, Roth IRAs, and employer-sponsored retirement plans like 401(k)s and 403(b)s are all affected. The SECURE Act includes some exceptions for the new ten-year rule, as follows:

– Eligible designated beneficiaries such as spouses, minor children, disabled or chronically ill individuals and beneficiaries who are not more than ten years younger than the original IRA owner.

– If the IRA owner died before January 1, 2020, their beneficiary is not subject to the new ten-year rule.

– Qualified charities are not subject to the new ten-year rule.

What to do with your Inherited IRA

Considering the significant changes under the new Inherited IRA rules, it’s essential to review your retirement plan and potentially readjust your IRA beneficiary designations. Here are a few recommended actions to consider with your inherited IRA:

1. Consult with a financial or tax advisor: With the changes, It’s wise to seek out expert advice as they can provide you with personalized recommendations, and help you navigate the tax implications.

2. Withdrawals and tax distribution planning: Determine how much you can withdraw from the inherited IRA account over the next ten years to minimize your tax impacts. You are not required to take distributions in equal amounts each year, but withdrawing your distributions evenly throughout ten years may provide tax advantages.

3. Review beneficiary designations: With ten-year distribution windows as the new norm for inherited IRAs, consider reviewing your own retirement savings planning before you designate beneficiaries for your IRAs.

In conclusion, the new Inherited IRA rules require careful consideration and planning to maximize tax-efficient withdrawals over ten years. Consulting a tax advisor or financial planner is an essential step for evaluating the best option to avoid costly mistakes that result in unintended tax burdens. Reviewing your retirement planning documents and beneficiary designations is also an excellent preventive measure for navigating the new IRA rules effectively.