The Setting Every Community Up for Retirement Enhancement (SECURE) Act changed the post-death distribution rules for designated beneficiaries (DBs) of retirement-plan accounts (other than defined benefit plans). The change applies to DBs of account owners who die in 2020 or later. It requires a DB to cash out the inherited account by 12/31 of the year that contains the tenth-year anniversary of the account owner’s death. This is the new 10-year rule.
A DB is an individual who is not an eligible designated beneficiary (EDB). An EDB is either the account owner’s surviving spouse or minor child (younger than age 18) or an individual who is disabled, chronically ill, or not more than 10 years younger than the account owner.
Importantly, the SECURE Act does not change the postdeath distribution rules for entities. Nor does it change these rules for designated beneficiaries of account owners who died in 2019 or earlier1.
It creates slightly modified post-death distribution rules for EDBs. The most significant modification is for the account owner’s minor children who must toggle from a life expectancy payout to the new 10-year rule at age 18.
2020 is likely to be a confusing time for retirement-plan account beneficiaries for many reasons, including RMDs. We hope the information in this post helps.
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