The Secure Act Updates on Inherited IRA’s
The SECURE Act has changed the timeline for how long a non-eligible designated beneficiary of an IRA account has to deplete the inherited IRA. Although there has been some confusion regarding the new rules over the past few years, the IRS has now clarified these requirements.
Here are a few key terms to understand:
RBD (Required Beginning Date): The date when distributions from your IRA account become mandatory, which is age 73.
RMD (Required Minimum Distributions): The minimum amount you are required to withdraw from your retirement account each year.
Eligible Designated Beneficiary: Includes the surviving spouse, disabled persons, chronically ill persons, individuals less than 10 years younger than the decedent, minor children, and some see-through trusts benefiting these individuals.
Non-Eligible Designated Beneficiary: Generally includes most non-spouse beneficiaries and some see-through trusts benefiting these individuals.
The IRS has further clarified the rules by dividing Non-Eligible Designated Beneficiaries into two subgroups:
Non-Eligible Designated Beneficiaries inheriting from an individual who died before their Required Beginning Date (RBD).
Non-Eligible Designated Beneficiaries inheriting from an individual who died on or after their RBD.
For different types of accounts:
IRA/401(k)/403(b)/457/SEP/SIMPLE:
If you inherited the account after the RBD, you must take annual RMDs and deplete the account by the end of the 10th year.
If you inherited the account before the RBD, you have 10 years from the year of inheritance to empty the account, with no annual RMDs required.
Roth IRA:
If you inherited a Roth IRA, you have 10 years from the year of inheritance to empty the account. There are no annual RMDs required.