Gregory goes over the IRS Rule changes for Inherited IRAs in this Winning At Life short clip

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In 2019, the SECURE Act (Setting Every Community Up for Retirement Enhancement Act) was passed, which brought some new changes to the rules for inherited Individual Retirement Accounts (IRAs). These changes took effect from 1st January 2020 and have some significant implications for account holders and their beneficiaries.

Under the previous rules, beneficiaries of an inherited IRA could take required minimum distributions (RMDs) over their lifetime. However, the new rules for inherited IRAs state that most beneficiaries must withdraw the entire balance of an inherited IRA within 10 years of the account holder’s death. This new ‘10-year rule’ applies to most beneficiaries, including spouses, children, and grandchildren, and can have both positive and negative effects.

One of the most significant impacts of the new rules is that beneficiaries will have a shorter time frame to withdraw inherited IRA funds. This may push up their taxable income for the years in which distributions are taken, potentially even pushing individuals into higher tax brackets. However, some individuals may welcome the changes, and the ability to receive the full funds sooner may create a financial opportunity – particularly for those beneficiaries who are in a lower tax bracket.

The SECURE Act also eliminates the age limit for traditional IRA contributions. Previously, individuals above the age limit of 70 1/2 were not allowed to contribute to their traditional IRA accounts; the new rules now enable contributions to continue after age 70 1/2 provided the account holder has earned income. This change allows individuals to continue saving for retirement and receive tax benefits for more extended periods than before.

Another notable change brought about by the SECURE Act is that it now permits certain tax-free distributions to be taken from an IRA for the expenses incurred due to the birth or adoption of a child. This applies to distributions of up to $5,000 and must be taken within one year of the date of the birth or legal adoption.

In summary, the new rules for inherited IRAs have significant implications for beneficiaries, and how they manage the distribution of funds. The 10-year rule requires careful planning and considerations, particularly for beneficiaries who may need to manage their taxable income. However, the new changes also offer some positive opportunities, including extended IRA contributions and the ability to take distributions for child-birth or adoption expenses. In light of these new rules, individuals should seek the guidance of financial professionals to maximize the benefits of their inherited IRA accounts.