RSK.IQ Question of the Month 12/21/20

IRA Distribution and the SECURE Act


What changes regarding IRA distributions were put in place by the SECURE Act?

Response Summary

The age for required minimum distributions was extended from age 70½ to 72, and the distribution of inherited IRA benefits to beneficiaries must take place within 10 years of the death of the participant.

Response Detail

The Setting Every Community Up for Retirement (or “SECURE) Act of 2019 went into effect after December 31, 2019. The two major changes made by the law affecting IRA distributions were the following:

  • Increase in age for required minimum distributions
  • End of stretch distributions for beneficiaries

Age for Required Minimum Distributions:

Under the previous law, the initial required minimum distribution (“RMD”) was for the year the participant turned age 70½. The initial payout could be postponed as late as April 1st of the year the participant reached that age. If the participant chose that option, the participant would have to take two RMDs that year: one by the April 1st deadline (the RMD for the previous year) and another by December 31st (the RMD for the current year).

The SECURE Act increased the age after which the participant must begin taking RMDs from 70½ to 72. This applies only to participants who reach 70½ after 2019. Participants who turn 70½ prior to December 31, 2019 are unaffected. Those who turn 70½ in 2020 or later will not have to begin taking RMDs until after reaching age 72.

The SECURE Act keeps the exception of prior law for participants who are still working as an employee after reaching the minimum age. If such participants do not own over five percent of the employer, they can postpone taking RMDs from the employer’s plan until after retirement.

Stretched Deferral Period:

Under the previous law, the distribution of IRA proceeds to beneficiaries of a deceased participant could be stretched out over the anticipated life span of the beneficiary, as defined by the IRS. The SECURE Act requires inherited distributions to be completed within 10 years of the death of the participant.

There are four exceptions to the 10-year requirement, allowing longer distribution periods for the designated beneficiaries:

  • Surviving spouses
  • Disabled or chronically ill individuals
  • Individuals who are not more than 10 years younger than the IRA owner
  • Minor children of the IRA owner.

Under the exception for eligible designated beneficiaries, RMDs from the inherited account can generally be taken over the life or life expectancy of the eligible designated beneficiary, beginning with the year following the year of the account owner’s death, as was the case prior to the enactment of the SECURE Act.

This response is for informational purposes only and is not intended for legal guidance.

This entry was posted on Monday, December 21st, 2020 at 10:58 am.

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