The rules around Inherited IRAs are complex. If your loved one passed away AFTER 1/1/2020 and the SECURE Act, then this video is for you! We break down the different beneficiary types, what you are required to do, and the options you have available.

CHAPTERS :
1:15 Information to Know
2:12 How does SECURE Act impact Beneficiaries?
2:56 What is an Eligible Designated Beneficiary?
3:35 What is a Designated Beneficiary?
3:58 What is a Non-Designated Beneficiary?
4:48 Eligible Designated Beneficiary Rules
5:57 Designated Beneficiary Rules
8:53 Non-Designated Beneficiary Rules
10:06 What kind of IRA Account?
11:49 Are you PRE-SECURE Act?

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The SECURE Act, which was signed into law in December 2019, brought about significant changes to the rules governing Inherited IRA distributions. Previously, beneficiaries of Inherited IRAs had the option to stretch out the distributions over their lifetime, but under the SECURE Act, most beneficiaries must withdraw the entire account within 10 years of the original owner’s death.

What does this mean for beneficiaries?

Under the new rules, beneficiaries of Inherited IRAs must take the full distribution of the account within 10 years of the original owner’s death. The 10-year rule applies to most beneficiaries, including non-spouse beneficiaries, beginning January 1, 2020.

However, there are a few exceptions to the 10-year rule. Eligible designated beneficiaries, including surviving spouses, minor children, and disabled or chronically ill beneficiaries, may still be able to stretch out distributions over their lifetime.

Surviving spouses have the option to roll over the Inherited IRA into their own IRA, giving them the option to continue taking distributions based on their own life expectancy. Minor children may stretch out distributions until they reach the age of majority, at which point the 10-year rule applies. Disabled or chronically ill beneficiaries may also be able to stretch out distributions over their lifetime.

What are the tax implications?

Inherited IRA distributions are generally subject to income tax, and the 10-year rule does not change that. However, the compressed timeline for distributions may result in a higher overall tax bill for beneficiaries.

One strategy to mitigate the tax impact is to take smaller distributions over the 10-year period, rather than waiting until the final year to withdraw the entire account. This may help to spread the tax burden over several years and minimize the impact on income taxes.

Another option for beneficiaries is to consider converting the Inherited IRA to a Roth IRA. While there will still be taxes due on the conversion amount, once the funds are in a Roth IRA, future distributions will be tax-free.

Conclusion

The SECURE Act has brought significant changes to the rules governing Inherited IRA distributions. Most beneficiaries must now withdraw the entire account within 10 years of the original owner’s death, which may have tax implications for the beneficiaries. However, there are exceptions to the 10-year rule, and eligible designated beneficiaries may be able to stretch out distributions over their lifetime. It’s important for beneficiaries to understand the new rules and consult with a financial advisor to determine the best strategy for managing Inherited IRA distributions.