While the SECURE (Setting Every Community Up for Retirement Enhancement) Act became law in late 2019 affecting retirement accounts, the Internal Revenue Service has only recently proposed how to implement it. These new regulations would apply to distributions on or after January 1, 2022.
Distribution Time Frames for Beneficiaries of IRAs
When the IRA account holder dies before the required beginning date (generally, April 1 of the calendar year following the calendar year in which the employee attains age 72 for IRA owners), the benefits will be distributed over one of three time periods.
If no qualified designated beneficiary exists, the proceeds must be distributed within five years. If a qualified designated beneficiary exists, the benefits are distributed over ten years. To be “qualified,” a beneficiary must be an individual (not an estate). A beneficiary of a see-through trust may also be treated as a designated beneficiary, for example in a Retirement Protector Trust (aka, IRA Trust or Retirement Plan Trust).
When the account holder dies after the required beginning date, the “at least as rapidly” rule applies. That means the required minimum distributions must be taken at least annually during the 10-year period, as opposed to the option of waiting until the final year ten.
Benefits may be distributed over the life expectancy of eligible designated beneficiaries (EDBs), who can fall into one or more of the following categories:
Surviving spouse of the employee
Minor child of the employee (under 21)
Chronically ill person
Other beneficiary who is not more than ten years younger than the employee
The starting date for required minimum distributions (RMDs) is the required beginning date. When the surviving spouse is the designated beneficiary, the distributions can be delayed until the end of the calendar year in which the employee would have turned seventy-two. A minor child who is not disabled or chronically ill reaches the age of majority at age twenty-one (21). This was proposed in order to avoid conflicts between states with differing statutes. When the child attains the age of twenty-one (21), any remaining benefits must be distributed from the retirement account within 10 years of that date.
If you need help with planning to protect your IRAs or other retirement accounts for your family when they inherit them in the future, please contact us at (760) 448-2220.