Secure Act 2.0: New Rules for Inherited IRAs and Beneficiaries

Secure Act 2.0: New Rules for Inherited IRAs and Beneficiaries

May 08, 2024

Secure Act 2.0: New Rules for Inherited IRAs and Beneficiaries 

Secure Act 2.0 came into effect as of January 1, 2020, with many new rules that impacted the retirement savings landscape. These changes were far reaching as they impacted the options that non-spousal beneficiaries have when inheriting a retirement account, i.e. IRA.  The options available to a non-spousal beneficiary are initially determined by the timing of the original Depositor's death.  Did the original Depositor pass prior to their Required Beginning Date (RBD) or did they pass after their RBD.  Pre-RBD is any period prior to April 1 of the year the original Depositor was to begin taking their Required Minimum Distributions (RMDs).  Post-RBD is any period on or after April 1 of the year the original Depositor was to initiate their RMDs.  Included below are the non-spousal beneficiary rules regarding IRAs for pre and post-Secure Act 2.0. 

Original Depositor passes prior to January 1, 2020 

Original Depositor passes pre-RBD:

-Move inherited assets into an Inherited IRA in the beneficiary's name and withdraw the entire account balance by December 31, containing the 5th anniversary of the original owner's death.

-Move inherited assets to an Inherited IRA and begin taking RMDs based on the beneficiary's life expectancy.RMDs would begin in the year following the original Depositor's death.

Original Depositor passes post-RBD:

-Transfer the inherited assets to an inherited IRA and take RMDs based on the longer of the decedent's life expectancy or the beneficiary's life expectancy.

Original Depositor passes after January 1, 2020

Original Depositor passes pre-RBD:

-Move the inherited assets into an inherited IRA, and the balance of the IRA needs to be completely withdrawn by December 31, containing the year of the 10th anniversary of the original owner's date of death.

Original Depositor passes post-RBD:

-Move the inherited assets into an inherited IRA in the beneficiary's name.  Calculate your RMD based on the longer of the single-life expectancy of the beneficiary or the original owner through year 9.  The balance of the IRA must be withdrawn by December 31 of, the 10th anniversary of the original owner's passing.

The only exception to the new rule is if a non-spousal beneficiary falls under the designation of Eligible Designated Beneficiary (EDB).  Examples of EDBs would be a minor child of the original owner, someone disabled or chronically ill, as well as someone who is not more than 10 years younger than the original Depositor.