Secure Act penalties on a non-spouse beneficiary not withdrawing funds entirely within 10 years.

Submitted by Kelly Cordes on Sat, 2020-01-04 18:14

Does anyone know what the penalties will be as a result of the Secure Act on a person who is a non-spousal beneficiary and who has inherited an IRA that does not totally drain the IRA within 10 years? Obviously I am asking about an IRA that is inherited by a non-spouse after December 31st, 2019.



Submitted by William Tuttle on Sat, 2020-01-04 19:50

  • I haven’t read the act, but assume a 50% excise tax would be due on the the year-end balance of the tenth year. This is the same treatment as applies to the current 5-year rule and RMDs.
  • Also, I would be inclinded to think that the IRS is going to be far less willing to waive the penalty as they often do now for failure to take RMDs.

Submitted by Alan - IRA critic on Sat, 2020-01-04 23:36

I agree. Currently, there is minimal oversight for beneficiary RMDs from IRAs from both the IRS and custodians. With the 10 year rule, the IRS can simply track when the 10 years expires after a beneficiary or successor beneficiary inherits, and expects the IRA to be drained. That said, some effort will have to be exerted to determine which beneficiaries are “eligible beneficiaries” v. the 10 year beneficiaries. Form 5498 coding could be enhanced along with custodian responsibility to identify which beneficiaries are which, but I’ll believe it when it happens.

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