Pre vs Post Secure Act Rules for Non-Spouse Beneficiaries
Hello,
I’m hoping that you can provide some clarity on what I believe to be true. The fact pattern is:
IRA owner had 2 IRAs at 2 different institutions
IRA owner passed away in 2018 under the age of 70.5
Her 4 sisters were named as beneficiaries
All beneficiaries will deplete their own inherited IRA by the end of the 5th year of the anniversary of her death (12/31/2023)
One of the beneficiaries contacted both institutions to confirm the date by which the inherited IRA should be depleted
The responses were:
Institution #1 advised 12/31/2023
Institution #2 advised that the “5 year rule (pre-secure act) has changed to the new 10 year rule (post secure act)”
My understanding is that the 5 year rule still governs and the 10 year rule would only have applied if the owner past after 12/31/2019. Have I misunderstood something?
Thank you in advance for the assistance!
Laura
Permalink Submitted by Alan - IRA critic on Thu, 2022-01-06 23:13
Doesn’t sound like either one of these custodians is up to speed. You are correct that the 10 year rule does not come into play for deaths prior to 2020. As for the 5 year rule, almost all IRA agreements specify life expectancy as the RMD method when the estate did not inherit, so I would look into why the beneficiaries are not using life expectancy RMDs. If they have not taken RMDs for 2019 and 2021, they can typically make up the shortfall and retain the life expectancy stretch. If separate inherited IRA accounts were created by 12/31/2019 each can use their own age. If not they all must use the age of the oldest of the 4. Finally, even if the 5 year rule applied due to the post death beneficiary limits of the contract, the accounts would not have to be drained until 12/31/2024 since the CARES Act included a provision for not counting 2020 as one of the 5 years.
If the separate inherited IRAs were established by 12/31/2019, each beneficiary could separately opt for either the 5 year rule or life expectancy.
Permalink Submitted by Laura Davitt on Fri, 2022-01-07 14:18
Thank you for the clarification!