New RMD Regs Have a Surprising Result for Minor Child Beneficiaries

Wednesday, July 31, 2024

By Sarah Brenner, JD
Director of Retirement Education

In newly released final required minimum distribution (RMD) regulations, the IRS is doubling down on its position that annual RMDs are required for some beneficiaries during the SECURE Act’s 10-year payout period. This rule has a surprising result for minor children who inherit an IRA from a parent.

The RMD regulations say that if an IRA owner died on or after his required beginning date for starting RMDs, then annual RMD payments must continue to a beneficiary who is subject to the 10-year rule upon the death of the IRA owner. However, the rule requiring annual RMDs to continue is not only limited to this situation.

Under the SECURE Act, a minor child of the account owner is considered an eligible designated beneficiary and can stretch distributions from an inherited IRA over their life expectancy until reaching age 21. Once this age is reached, the 10-year rule applies. However, the final RMD relations retain a surprising twist introduced by proposed regulations back in 2022. The rule requiring annual RMDs to continue also applies during the 10-year period, regardless of whether the parent died before or after the required beginning date for the parent’s own RMDs.

Example: In 2025, Ella, age 10, inherits an IRA from her mother, 36. Ella is an eligible designated beneficiary (EDB) and can stretch distributions over her single life expectancy. This will go on for 11 years. Ella’s 21st birthday is in 2036. Because Ella has reached age 21, the 10-year rule will then apply. This means that Ella must empty the inherited IRA by December 31, 2046 – by the end of the 10th year after she reached age 21.

But even though Ella’s mother died well before her required beginning date for her own RMDs, Ella must continue to take annual RMDs for years 1-9 of the 10-year period. Because annual RMDs have started, the rules require that they continue.

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