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How does SECURE 2.0 Impact Inherited IRA Rules?

April 30, 2024

Attention beneficiaries of an inherited individual retirement account (IRA): Are you up to speed on what the SECURE Act 2.0 has changed? Let’s dive in.

Have you recently inherited a loved one’s individual retirement account? The inherited IRA rules and retirement plan rules are complex — and they’ve changed under recent legislation. Here’s what you should know about SECURE 2.0’s impact on inherited IRAs.

What happens when you inherit an IRA?

If you are a surviving spouse, there are at least 4 options for you when dealing with an inherited IRA. You can:

  1. Move the inherited IRA assets into your existing IRA.
  2. Convert your deceased spouse’s IRA to your own Roth IRA.
  3. Relocate assets into an inherited IRA that is properly-titled.
  4. Renounce all or part of the assets in the IRA.

Under previous guidance, non-spouse beneficiaries could:

  • Cash out the IRA by December 31st of the 5th year following the account owner’s death,
  • Opt to take required minimum distributions from inherited IRAs over their life expectancy, instead of taking all the money within five years. This was known as the “stretch IRA” strategy.
  • Opt to take RMDs over the life expectancy of the oldest beneficiary of the IRA if the account owner named more than one beneficiary, and separate inherited IRA accounts aren’t established for each beneficiary by December 31st of the year following the account owner’s death
  • Cash out the IRA immediately

What changed under SECURE 2.0?

The SECURE Act eliminates the stretch IRA option and now requires most non-spouse beneficiaries to take RMDs ratably from accounts inherited from owners who died after 2019 within 10 years after the account owner’s death. The new 10-year rule applies regardless of whether the account owner dies before, on, or after his or her required beginning date (RBD). Additionally, SECURE 2.0 pushes the RBD to age 73. Check out our Guide to Required Minimum Distributions (RMDs) for more information about the change.

So, does this mean that there is no RMD as long as the balance is distributed within 10 years?

No. To the surprise of many, in February of 2022 the IRS issued proposed regulations, stipulating that IRA owners subject to the 10 year rule must withdraw an RMD from their IRA until the balance is exhausted.

As of April 16, 2024, the IRS issued a notice making clear that the 10 year RMD rule is not required in 2024 (adding to the relief made for years 2020-2023), but also noted that they expect this to be the last year for relief.

Have you recently inherited an IRA? Wondering how you can make the most of it? We can help. Contact us.

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