new stretch IRA and disabled/chronically ill person

Submitted by abraham boznick on Fri, 2019-12-27 05:06

New 10 year distribution rule for inherited IRA is waived for beneficiary who is disabled/chronically ill person. Do we know what the definition of disabled or chronically ill person would be for the IRA purpose? Also If the beneficiary was disabled or chronically ill at the time of the account owner death but later would STOP being disabled or chronically ill – what would happen to 10 year waiver rule. What if the beneficiary was NOT disabled or chronically ill at the time of the account owner death – but later becomes disabled – what would happen to the 10 year rule?



Submitted by Alan - IRA critic on Fri, 2019-12-27 15:52

  • Good questions. You would have to read Sec 7702B(c)(2), and to distinguish between chronically ill and the usual disability exception, you may need to be an SSD attorney. Bottom line, I doubt the IRS is going to question any certification, but the definitions and certification requirements are subjective to a considerable degree.  For cognitive impairment situations, it appears the certification must have already been secured in the 12 months prior to the death of the participant. The beneficiary could not wait until the participant passed and then attempt to secure a cognitive impairment certification.
  • Added to the definition in 7702B is the requirement that the illness duration be indefinite and lengthy in nature.
  • While not clear, I expect that if the certified beneficiary partially recovers later on, nothing will change. Part of the definition of an eligible beneficiary is that the determination is made as of the DOD. Nothing is suggested about any later determinations, so you cannot become an eligible beneficiary due to declines after the DOD, and neither is the certified beneficiary going to lose certification. The definition of an eligible beneficiary has the “set it and forget it” overtone to it.
  • If a chronically ill potential beneficiary knows that the participant’s death is fairly close, they may want to collect documentation that would help with certification. I doubt that IRA custodians will ask for a copy of the actual certification, but qualified plan administrators might. Or the IRS might provide guidance down the road.

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