The SECURE Act changed many of the rules for non-spouse beneficiaries of retirement accounts. Prior to the SECURE Act, most non-spouse beneficiaries were subject to Required Minimum Distributions each year but were able to “stretch” the account over their lifetime. The SECURE Act essentially eliminated the lifetime stretch and requires 100% of the account to be distributed within 10 years.
However, certain “Eligible Designated Beneficiaries” may still be able to stretch the RMDs over their lifetime. Eligible Designated Beneficiaries include surviving spouses, minor children of the account owner, disabled individuals, the chronically ill, and beneficiaries who are less than ten years younger than the original IRA owner.
While this may sound straight forward, the last classification of “beneficiaries not more than ten years younger than the IRA owner” may include individuals who are older than the IRA owner. Therefore, non-spouse beneficiaries who are older than the deceased IRA owner, as well as those less than 10 years younger, may continue to stretch the IRA over their lifetime.
It is important for IRA beneficiaries to understand all of the distribution options available to them and to plan accordingly based on the current tax laws.