The Setting Every Community Up for Retirement Enhancement Act (“SECURE Act”), which went into effect on January 1, 2020, made significant changes to the laws governing IRAs and other retirement plans. In particular, the SECURE Act affected the required beginning date of participants or the date on which participants must begin taking annual required minimum distributions (RMDs). The SECURE Act also impacted beneficiaries’ income tax deferral benefits on inherited IRAs.
The IRS issued Proposed Regulations in February 2022 that upset and directly contradicted the well-accepted assumptions that practitioners had developed over the past two years. As a result, most IRA beneficiaries are now facing even less favorable income tax deferral than expected.
Changes to Deferral Options for Individual IRA Beneficiaries
The SECURE Act did not change the deferral options for surviving spouses. The Act did limit the ability of most other individual beneficiaries to “stretch-out” IRA distributions over their lifetimes, as they could before the Act’s passage. Only “eligible designated beneficiaries” can stretch-out IRA distributions over their lifetimes; eligible designated beneficiaries include:
- Surviving spouses;
- Minor children;
- Disabled or chronically ill beneficiaries; and
- Beneficiaries who are not in any of the above categories and are not more than ten years younger than the participants.
