SECURE ACT and IRA Non Spouse Benficiary Options

Submitted by Scott Carbaugh on Fri, 2020-01-03 19:21

The IRA owner passes in late 2019. His IRA Beneficiaries are his 2 adult children.

What effect (if any) does the SECURE ACT have on RMDs and distribution options for the beneficiaries?



Submitted by Alan - IRA critic on Fri, 2020-01-03 19:40

  • None. The new 10 year rule only applies to plans inherited after 2019. These adult children will still get their full LE stretch as before based on their respective ages in 2020. The 2020 divisor will then be reduced by 1.0 each year thereafter. They should create separate inherited IRA accounts no later than 12/31/2020.
  • That said, the Secure will change things for the children’s own beneficiaries once the children pass. They will be subject to the 10 year rule instead of completing the children’s RMD schedule.

Submitted by Robert Wright on Sat, 2020-01-04 20:34

Alan, Interesting scenario:

  • Say the original beneficiary (child of IRA owner) who inherited in 2019 had a LE stretch of say 20 years.
  • If the original beneficiary (child of IRA owner) died in year 15 of the 20 year stretch, the children’s named beneficairies (the grand children of the original IRA owner) would then have 10 years to withdrawal all of the money left in the inherited IRA.
  • In this case, the 10 years given to the grandchildren would actually be MORE than the 5 years left in the original beneficiary’s 20 LE stretch resulting in a longer total strecth of something like 25 years.

Do I have this correct?

Submitted by Alan - IRA critic on Sat, 2020-01-04 23:19

Yes, you are correct. The successor beneficiary additional 10 years will sometimes provide a longer stretch than the successor would have had, but could also reduce the stretch depending on the age the designated beneficiary inherited and how long they lived.

Submitted by Robert Wright on Sun, 2020-01-05 02:37

  • So what is the rule for successor beneficiaries?
  • Is every successor beneficiary subject to the 10 year rule regardless of who the successor beneficiary is?

Submitted by Alan - IRA critic on Sun, 2020-01-05 15:28

  • A successor beneficiary of a pre Secure Act designated beneficiary is treated as if that designated beneficiary was an eligible beneficiary. That means the 10 year rule applies to these successor beneficiaries. This is the same treatment a successor beneficiary of a post Secure Act eligible beneficiary receives.
  • A post Secure Act designated (non eligible) beneficiary is subject to the 10 year rule to begin with. A successor beneficiary to this non eligible beneficiary is subject to the same 10 years. They do not receive 10 additional years.
  • Both Pre Secure and post Secure non designated beneficiaries (estates, NQ trusts, charities) are subject to either the 5 year rule or the remaining LE of the decedent if decedent passed after the RBD. If an inherited IRA is assigned out of the estate to the estate beneficiaries, these beneficiaries only get the remaining time the estate had. That applies to successor beneficiaries named by the estate beneficiary. Therefore, Secure had no effect on this class of beneficiaries.

Submitted by Robert Wright on Sun, 2020-01-05 16:08

Thanks Alan.

Submitted by Scott Carbaugh on Sun, 2020-01-05 23:37

Thank you for your reponse.  If the decedent had a 401k and 457 along with the TIRA, couls the each beneficiaries combine those accounts into one Non Spuse Inherited IRA amd take RMDs based upon that one account?

Submitted by Alan - IRA critic on Mon, 2020-01-06 00:03

If the decedent left an inherited IRA, inherited 401k, and inherited 457b, each beneficiary could do a direct rollover of the inherited employer plans into the inherited IRA providing that the RMD divisors are the same. There are certain situations where the divisors might be different due to delays in establishing separate accounts for one of more beneficiaries that would result in RMDs being based on the oldest beneficiary. To avoid this all the inherited plans should be rolled into a separate inherited IRA for each beneficiary no later than 12/31 of the year following the year of the participant’s death. To be clear, not only must the plan be inherited from the same original owner directly, the divisors must also be the same to combine them. If any of these plans had been inherited by the participant before the participant passed, the divisors would not be the same and that the previously inherited plan would have to be kept separate. The Secure Act could also be a factor. For example, if the participant passed in 2021, and the 457b was a govt plan, the Secure Act would not be effective yet and beneficiaries of that plan would be eligible for a full stretch, but the other accounts might be subject to the 10 year rule. Any variable in this scenario that differs would eliminate combination of at least one of the accounts.

Submitted by Nick Toadvine on Mon, 2020-01-06 15:41

Alan, based on your response,”For example, if the participant passed in 2021, and the 457b was a govt plan, the Secure Act would not be effective yet and beneficiaries of that plan would be eligible for a full stretch, but the other accounts might be subject to the 10 year rule.” I am wondering where one can find these exceptions.  Thank you.

Submitted by Alan - IRA critic on Mon, 2020-01-06 17:40

Sec 401b of the Secure Act lists various effective dates. The delays are for collectively bargained plans, govt plans, and certain annuities. The collectively bargained and govt plans will all be subject to Secure no later than 1/1/2022.

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