Calvin R., died on Jan. 25. He left an IRA worth $400,000. Calvin’s beneficiary designation named his current wife, Joyce and his adult son, Marcus to take the proceeds equally. Will Marcus and Joyce be able to maintain a distribution schedule from the IRA that extends over their life spans?
As of January 1, 2020, the awkwardly named law Setting Every Community Up for Retirement Enhancement (SECURE) went into effect. SECURE makes significant changes to Individual Retirement Accounts (IRAs), among them, rules governing distributions from inherited IRAs.
Under prior law, a person who inherited an IRA could make annual required minimum distributions in accordance with his or her life span. Under SECURE, IRAs inherited from an IRA owner who died prior to January 1, 2020, can continue to do so. However, IRAs inherited from an owner passing away after December 31, 2019, are subject to a 10-year distribution period. This means that the annual required distributions will be larger and, consequently taxed sooner, than under the old rule.
Under SECURE, the following persons are exempted from the 10-year rule: (1) a surviving spouse; (2) a minor child; (3) a disabled or chronically ill individual; and (4) a beneficiary who is less than 10 years younger than the decedent. These persons will be able to follow the schedule of distributions based upon their own life spans.
Calvin’s IRS is governed by SECURE, since he died after December 31, 2019. Joyce, as a spouse, is in the exempted class and will be able to make required minimum distributions based upon her own life span on the one-half of the IRA which she inherited. However, Marcus is not exempted and will have to make distributions based on the 10 year restriction rather than on his life expectancy.
All owners of IRAs should review their beneficiary designations considering SECURE and make adjustments to beneficiary designations, as needed, if avoidance of the inherited IRA 10-year rule is desired.
Sandra W. Reed is an attorney with Katten & Benson, an Elder Law firm handling probate of estates, wills, trusts and Medicaid planning in Fort Worth. She lives in beautiful Somervell County, near Chalk Mountain.