SECURE Act – New Retirement Account (IRA) Beneficiary Rules

The SECURE Act, effective January 1, 2020, makes significant changes to the previous rules governing payout of distributions to beneficiaries of an inherited retirement account, including IRAs.

Previously, beneficiaries were in general entitled to “stretch” the required minimum distributions from the inherited account over the life expectancy of the beneficiary. The “stretch” option allowed the beneficiary to continue to benefit from the tax-deferred investment returns of the inherited retirement account over the beneficiary’s lifetime.

The SECURE Act eliminates the “stretch” option for most beneficiaries of inherited retirement accounts, and requires them to distribute the funds in the account in full within 10 years of the plan participant’s death.

Going forward, the “stretch” option will only be available to 5 classes of beneficiaries:

  1. The surviving spouse of the plan participant
  2. Minor children of the plan participant
  3. Disabled beneficiaries
  4. Chronically ill beneficiaries
  5. Beneficiaries less than 10 years younger than the plan participant

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