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What to know about Required Minimum Distribution rules

Posted on January 18, 2024

You probably already know that beneficiaries of retirement plan and IRA accounts are subject to required minimum distribution (RMD) rules. However, The SECURE Act changed how and when beneficiaries (who are individuals) must take distributions for account owner deaths after 2019. According to Mike Poynter, CPA at Teipen CPA Group, there were no changes to the RMD requirements for beneficiaries where the account owner died prior to 2020, or to beneficiaries that are not individuals.

Here are the specifics:

Distributions to beneficiaries from qualified retirement plans

If the distribution is from a qualified retirement plan, such as a 401(k) or profit-sharing plan, the plan document establishes the distribution options available to satisfy the RMD rules. A spousal beneficiary will generally have more options available to them in the plan than a non-spouse beneficiary. Beneficiaries should contact the plan administrator to learn about their distribution options in a qualified plan.

Benefit distributions from inherited IRAs

Death of the account owner after 2019

If the owner of the plan died occurred prior to the required beginning date, spousal beneficiaries have two options:

  • Roll over the account into their own IRA
  • Treat as their own IRA
  • Take distributions based on their own age
  • Distributions from their own IRA are subject to the 10% additional tax on early distributions
  • Keep as an inherited account
  • Must take distributions based on their own life expectancy, or
  • Follow the 10-year rule
  • Not subject to the 10% additional tax on early distributions

If death occurred after the required beginning date, spousal beneficiaries have two options:

  • Roll over the account into their own IRA (only if spouse is sole beneficiary)
    • Treat as their own IRA
    • Take distributions based on their own age
    • Subject to the 10% additional tax on early distributions before age 59½
  • Keep as an inherited account
    • Must take distributions based on their own life expectancy or the decedent’s life expectancy, whichever is longer

Death of the account owner after 2019

Options for a beneficiary who is not the spouse of the deceased account owner depend on whether they’re an “eligible designated beneficiary” or a designated beneficiary. An eligible designated beneficiary can be one of the following:

  • Surviving spouse
  • Minor child of the deceased account holder (must follow 10-year rule after reaching age 21)
  • Disabled (or chronically ill) individual
  • Individual who is not more than 10 years younger than the IRA owner or plan participant

An eligible designated beneficiary may:

  • Take distributions over the longer of their own life expectancy and the account owner’s remaining life expectancy, or
  • Follow the 10-year rule (if the original account owner died before their required beginning date)

Designated beneficiary (not an eligible designated beneficiary)

  • Follow the 10-year rule

Non-designated beneficiary (for example a charity or estate)

  • Follow the 5-year rule if the owner died before distributions were required to begin
  • Take distributions over the life expectancy of the original owner if they died after distributions were required to begin

That’s a lot to process, let alone act upon. Because we deal with questions related to inherited IRA beneficiaries all the time, we will be happy to answer any questions you may have. Just reach out by phone, website or email. As always, happy to help.