SECURE Act – “Stretch” RMD

The SECURE act was signed into law on December 20, 2019.  There are some key provisions that may have an impact on your retirement strategy.  Let’s focus on the Required Minimum Distributions, or RMDs, rule for designated beneficiaries.

OLD LAW – After death, RMD rules permit the designated beneficiary to draw down the remaining plan or IRA benefits over the beneficiary’s life expectancy.  The rules differ slightly based on whether the participant dies before or after the required beginning date, but very generally, the distributions can be stretched over the beneficiary’s life expectancy

NEW LAW – Upon the death of an IRA owner or defined contribution plan participant, the individual beneficiary will be required to draw down the entire inherited interest within 10 years.  This rule applies regardless of whether RMDs had begun prior to the owner/participant’s death.  The 10-year rule does not apply to “eligible designated beneficiaries” as long as the amount is taken over the beneficiary’s life expectancy and the distributions begin within one year of the death.  Eligible designated beneficiaries are:

surviving spouse;

child under the age of majority;

disabled or chronically ill; or

Any other person who is not more than 10 years younger than the participant/IRA owner

In the case of the child who hasn’t reached the age of majority, the 10-year rule applies as of the date the child attains the age of majority.

WHAT IT MEANS – If you inherit an IRA or qualified plan, it’s best to seek expert advice.  This provision has some nuances that will be specific to your unique situation.  Generally, if you are the spouse you will have the option to convert the IRA to your own but gone are the days of inheriting an IRA from Grandpa Bob and stretching it out of your lifetime.  This can impact your retirement strategy so be sure to understand how this provision may affect you.

Check out the other key provisions of the SECURE Act

SECURE ACT Key Provisions

SECURE ACT Detailed Summary