Section 327 Secure 2.0 and Spousal Election
Hi there,
I’m trying to understand the spousal election under Section 327 of Secure 2.0. Does this provision apply to employer plans only or do spousal beneficiaries of IRAs also have to follow the same rules? I’ve read Ian Berger’s post titled SECURE 2.0’s Biggest Mess that indicated that it applies to IRAs and employer plans. I’ve also read several posts on line from attorneys and others in the industry that indicate that it only applies to employer plans and not IRAs.
Are the options for a spousal beneficiary now:
Treat as Own/Spousal Rollover
Treat as beneficiary- RMDs start in year after IRA owner’s death using Single Life Table, re-calculated annually
Treat as IRA owner- RMDs start when decedent owner reaches applicable start age and decedent owner’s life expectancy with Uniform Table…
Any clarity is greatly appreciated!!
Permalink Submitted by Alan - IRA critic on Wed, 2024-05-22 20:35
Yes, Sec 327 is newly effective in 2024, but has received scant attention in the financial press. Basically, the intent of this provision was to bring qualified plans into parity with the IRA rules that have been in place all along.
Therefore, a qualified plan may retain spousal beneficiary accounts by applying the Uniform Table to such spouses if they make a specified election (probably required in writing) to be treated as the employee. This eliminates a prime reason for the spousal rollover to an IRA.
But it appears that Sec 327 goes one further, by allowing the Uniform Table RMDs based on the spouse’s age to be postponed until the year the participant would have reached RMD age. It’s not clear whether this provision will apply to IRA accounts or not. If it applies, an older surviving spouse could elect to be treated as the owner and if they are over RMD, they would not have to take an RMD until the deceased spouse would have their RMD age.
Since this is now effective, the IRS needs to publish some guidance to provide additional clarity. I expect that the spouse could not make the election if they are not the sole beneficiary of the plan, but Sec 327 does not state this.
A related provision in the proposed Secure Act Regs intend to place a deadline on such elections, which affect the current default to ownership rules if a beneficiary RMD is missed as well, but this needs further IRS guidance. No mention is made of this proposal in Pub 590B.