Since the SECURE Act was passed at the end of 2019, we have been waiting for finalized regulations from the IRS clarifying rules specifically around Required Minimum Distributions (RMDs) from inherited IRAs. At long last, the regulations have been finalized.
In general, there are two main categories of named beneficiaries of IRAs: eligible and non-eligible. Eligible beneficiaries include a surviving spouse, minor children, and individuals no more than ten years younger than the IRA owner and/or with a disability. Non-eligible encompasses any other natural person beneficiary.
Under the SECURE Act rules, a non-eligible designated beneficiary, like an IRA owner’s adult child, would have to completely deplete the inherited IRA by the end of the 10th year following their passing. This raised an important question: are annual distributions by the beneficiary required during those 10 years?
The finalized regulations answered the question: it depends on whether the IRA owner was required to take RMDs at the time of their death. If so, then minimum annual distributions are required from the inherited IRA during the 10 years. If the IRA owner was not yet of RMD age, no annual distributions are required as long as the inherited IRA is completed by the end of the 10th year.
There are several nuances to these rules, so if you or a loved one has any questions on your specific situation, we are happy to help and it’s important to speak to your tax professional.