The SECURE Act: RMDs on Inherited Accounts

As has become usual practice, Congress passed some meaningful tax legislation as it recessed for the holidays.

 

In one of the new meaningful laws, enacted on December 20, 2019, you will find the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act).

 

The SECURE Act made many changes to how you save money for your retirement, how you use your money in retirement, and how you can better use your Section 529 plans. 

 

Each week, I present one of the eight game changers of the SECURE Act.   In week eight, the final installment, Congress changes the time period for RMDs on inherited retirement accounts.

 

Under the old rules for inherited retirement accounts, you could “stretch” out the account and take RMDs each year to deplete the account over many years.

 

Now, if you inherit a defined contribution plan or an IRA, you must fully distribute the balances of these plans by the end of the 10th calendar year following the year of death. There is no longer a requirement to take out a certain amount each year.

 

The current stretch rules, and not the new 10-year period, continue to apply to a designated beneficiary who is

  • a surviving spouse,

  • a child who has not reached the age of majority,

  • disabled as defined in Code Section 72(m)(7),

  • a chronically ill individual as defined in Code Section 7702B(e)(2) with modification, or

  • not more than 10 years younger than the deceased.

This change applies to distributions for plan owners who die after December 31, 2019.

 

 

 

 

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