The Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE) Act made major changes to IRA RMD rules, pushing the age of onset from 70½ to 72. The SECURE Act 2.0 further increased this to age 73.
The SECURE Act also significantly changed some inherited IRA rules for non-spouse beneficiaries. Starting with those inherited after Jan. 1, 2020, the SECURE Act requires the entire balance of the participant’s inherited IRA account to be distributed or withdrawn within 10 years of the original owner’s death. The 10-year Rule applies regardless of whether the participant dies before, on, or after the required beginning date (RBD), the age at which they had to begin RMDs.
In other words, you must withdraw the inherited funds within 10 years and pay income taxes on the distributed amounts. Since withdrawals are required, you won’t pay the 10% penalty if you’re under 59½. But you must pay income taxes on the distributions and eventually empty the account.
Exceptions to the 10-Year Rule
Some beneficiaries are exempted from the 10-year Rule. This exemption includes:
- A surviving spouse
- A disabled or chronically ill person
- A child who hasn’t reached the age of majority
- A person not more than 10 years younger than the IRA account owner2
These beneficiaries are not obligated to deplete the IRA within 10 years. They will likely take annual RMDs from it, where the exact amount can be calculated based on their life expectancy.
Beneficiaries have until Dec. 31, following the IRA owner’s death, to begin withdrawals. However, if the original account owner was required to take an RMD in the year they died but hadn’t yet, the beneficiary must take that RMD for them in that year, in the amount the deceased would’ve withdrawn.
Additionally, a surviving spouse beneficiary may delay the commencement of distributions until the end of the year when the original IRA owner would have begun taking RMDs or until the surviving spouse’s required beginning date.