Where does SECURE allow lifetime stretch for SNT beneficiaries?

Submitted by Robert Vashko on Fri, 2020-01-24 01:20

I’ve read several blogs, as well as posts here, stating that if an IRA is left to a Special Needs Trust, and the disabled trust beneficiary is the only beneficiary of said trust, then the lifetime stretch option is available post-SECURE.

It makes sense, but where does SECURE allow for this? I’d like to include this bit in a presentation, but I need some providence or citing authority on it before I feel comfortable doing so.

This is the best I could come up with on my own:

1.) SECURE creates a new subsection (H) to §401(a)(9) that sets out the new out-in-10 rule for DC plans by changing the “5 years” in (B)(ii) to “10 years,” and making it applicable whether or not the decedent participant had hit their RBD before dying.

2.) New subsection (H) also states that (B)(iii) – the exception to the formerly out-in-five, now out-in-10 rule – now only works for “eligible designated beneficiaries”

3.) CFR §1.401(a)(9)-4 states that if the trust qualifies as “see-through”, “the beneficiaries of the trust (and not the trust itself) will be treated as having been designated as beneficiaries of the employee under the plan for purposes of determining the distribution period under section 401(a)(9)”

4.) The SN individual is deemed the designated beneficiary of the account

5.) The designated beneficiary qualifies as an eligible designated beneficiary

6.) 401(a)(9)(H)(ii) states that EDB’s are exempt from (B)(ii)’s out-in-10 rule and make take a lifetime stretch under (B)(iii)

Is that how it works? Or is there a less convoluted way to get there?

Please and thank you!



Submitted by Alan - IRA critic on Fri, 2020-01-24 02:41

  • The Secure Act carves out an exception to the 10 year rule for defined “eligible beneficiaries”. Classes of eligible beneficiaries are 1) Spouses  2) a minor child of the participant up to the age of majority  3) Disabled  4) Chronically Ill  5) Beneficiaries not more than 10 years younger than the participant. These beneficiaries still qualify for the life expectancy stretch.
  • Secure also applies a special rule to applicable SNTs for eligible beneficiaries in 3 and 4 above when no one other than such eligible beneficiaries can inherit until all such eligible beneficiaries are deceased. In such trusts each such eligible beneficiary can take distributions over their life expectancy. The age of the oldest such beneficiary no longer matters.

Submitted by Robert Vashko on Fri, 2020-01-24 02:57

Thanks, Alan.  I had been looking through an earlier version of the SECURE bill and couldn’t find this special rule.  I probably should have started with the final Further Consolidated Spending Act, in which I found the rule almost immediately.  😉

Submitted by Alan - IRA critic on Fri, 2020-01-24 03:44

Yes, SNTs come out pretty well, but trusts for “non eligible” designated beneficiaries have been thrown for a loop and are subject to the 10 year rule. For “eligible” but non disabled beneficiaries such as a sibling less than 10 years younger, that sibling gets the stretch, but not if there is another sibling beneficiary more than 10 years younger. 10 year rule beneficiaries do not mix well with eligible beneficiaries. 

Submitted by Robert Vashko on Fri, 2020-01-24 13:33

But I wonder if my less-than-concise argument above would support a lifetime stretch for a less-than-10 sibling beneficiary in a multi-beneficiary trust.I mean – if subtrusts are established upon the death of the participant by Sept. 30 of the year after death, and the less-than-10 sibling is sole beneficiary of their subtrust, couldn’t we use 1.401(a)(9)’s language to use just that individual (the “see-though” designated beneficiary) to determine the applicable distribution period for that subtrust – i.e., lifetime stretch?Or is Sept. 30th for determination date not relevant anymore?Or are we thwarted by SECURE’s language that EDB’s are determined AT the participant’s death, not by determination date?

Submitted by Alan - IRA critic on Fri, 2020-01-24 15:18

  • This question appears to need further IRS guidance, and there is immense pressure on the IRS to act since many estate plans now sit in limbo. That said, the following paragraph from Natalie Choate is useful. Substitute your less than 10 EDB for the minor child in her example.
  • “Another unknown is whether the “minors” exception would be available if the IRA is left to a trust for multiple children of the participant only some of whom are minors. Suppose the trust is required by its terms to divide immediately upon the participant’s death into separate conduit trusts, one for each child. Can the minor children’s subtrusts then qualify for the exception? That is unknown. Under existing IRS regulations, post-death trust divisions are ignored for purposes of determining the applicable distribution period. Reg. § 1.401(a)(9)-4, A-5(c). The SECURE drafters were apparently aware of this regulation, since SECURE specifically allows such post-death divisions to be used to establish an exception-qualifying trust for a disabled beneficiary (see “Planning for Disabled and Chronically Ill,” below); the fact that SECURE does not do the same for minors’ trusts suggests a negative answer, though some optimists are interpreting § 401(a)(9)(H)(iv)(I) as statutorily overruling Reg. § 1.401(a)(9)-4, A-5(c) for all EDBs. “

Submitted by Robert Vashko on Fri, 2020-01-24 18:20

Where are you getting this info from Ms. Choate, Alan?  I’d like to read about her other observations on SECURE.

Submitted by Alan - IRA critic on Fri, 2020-01-24 19:53

The link will not copy – try to google “heckerling secure pdf”

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