March 15th, 2022

Keeping Up With the SECURE Act: Changes on the Horizon

In 2019, Americans were introduced to Congress’ expansive new rules on retirement plans and their required minimum distributions (RMDs) in the SECURE Act. One of the key components of the 2019 legislation was the ten-year payout rule which abolished the ability of IRA and 401(k) beneficiaries to “stretch” the payout of their inherited IRA during their life expectancy unless they met one of the criteria for “eligible designated beneficiary”. Under the SECURE Act, the following eligible designated beneficiaries are still permitted to “stretch out” their required minimum distributions during their life expectancy (set by IRS Tables):

  • Spouse of the account owner
  • Disabled beneficiary
  • Chronically ill beneficiary
  • A beneficiary that is not more than 10 years younger than the account owner
  • Certain minors until they reach the age of majority

For all other individuals (separate rules apply for charitable beneficiaries) who inherit an IRA or 401(k) in 2020 or later, the asset must be fully liquidated 10 years after the inheritance. While the account must be fully liquidated by year 10 of inheritance, much debate followed upon the enactment of the SECURE Act as to whether the IRS would require annual RMDs during the 10 year period. Accordingly, in March of 2021, the IRS issued Publication 590-B[1] indicating that it would require annual RMDs. Subsequently, in May 2021, the IRS revised its publication to indicate that RMDs would not be required. As such, beneficiaries of inherited IRA’s or 401(k)s were permitted to hold the account without any distributions and liquidate in year 10 in accordance with their tax objectives.

On February 24, 2022, the IRS has yet again issued proposed regulations[2] that would require all individuals, other than eligible designated beneficiaries, who inherit an IRA or 401(k) to take annual RMDs in years 1 through 9, and liquidate the balance of their inherited account in year 10. In addition to the annual RMDs, the proposed regulations also set out new rules with regard to the age of minority, how to determine disability and chronic illness, and rules regarding IRAs that are left to trusts.

The recent backpedal has left tax preparers and estate planners scrambling to keep up with the current rules and experts remain on the edge of their seats as the proposed regulations remain open for comments until May 25, 2022. To determine whether these rules affect your current estate plan, contact a professional at Gross McGinley, LLP.

[1] https://www.irs.gov/publications/p590b

[2] https://www.federalregister.gov/documents/2022/02/24/2022-02522/required-minimum-distributions


Kathy Bacenet serves on the firm’s Estates team, helping individuals and business owners navigate simple and complex estate planning and administration matters.