IRS Final Regulations Loosen Definition of “Eligible Designated Beneficiary”

By Ian Berger, JD
IRA Analyst

One of the positive outcomes of the new IRS final SECURE Act regulations on required minimum distributions (RMDs), released on July 18, is that more beneficiaries will be able to stretch RMDs over their lifetime.

Under the 2020 SECURE Act, only a certain class of individual beneficiaries –  eligible designated beneficiaries (EDBs) – of IRAs and company plan accounts can use the stretch. Individual beneficiaries who are not EDBs must instead now use a 10-year payment rule.

Under the SECURE Act, EDBs are designated beneficiaries who are:

• The surviving spouse of the IRA owner or plan participant;
• A minor child of the account owner;
• A disabled individual;
• A chronically ill individual; or
• A person not more than 10 years younger than the account owner.

The final regulations don’t expand these categories. But the regs do make it easier for certain people to fit into one of these categories:

• Minor children. A child of an account owner is an EBD if the child is under age 21 when the account owner dies. The final rules expand the definition of “child” to include legally adopted children, stepchildren and foster children.

• Disabled individuals. Under the SECURE Act, someone is considered disabled if they are unable to perform any job as a result of a physical or mental impairment which can be expected to result in death or continue indefinitely.

In the final regulations, the IRS provides an alternative definition that can be used when the beneficiary is under age 18 when inheriting an IRA or plan account. This alternative definition replaces the requirement that the beneficiary’s impairment makes it impossible for him to perform any job with a requirement that the impairment causes severe functional limitations. The alternative definition should make it easier for young beneficiaries to meet the “disability” standard and become an EDB.

          Wouldn’t a disabled child under 18 automatically qualify as an EDB on

          account of being a minor? Yes, but a disabled child who turns 21 would

          remain an EDB, while a child not disabled would become a non-EDB and

          become subject to the 10-year payment rule at age 21.

The final regulations also say that someone who has been found to be disabled by the Social Security Administration is automatically considered to be an EDB.

• Documentation of disability or chronic illness. The SECURE Act requires that documentation of disability or chronic illness be provided to the IRS custodian or plan administrator. The IRS previously required this documentation to be given by October 31 of the year following the year of the account owner’s death.

These rules raised privacy concerns. In response, the IRS completely waived the certification requirement for IRA beneficiaries. For plan beneficiaries, the IRS said the certification “need not be overly detailed” and can be satisfied without providing backup documentation such as medical records. In addition, a disabled or chronically ill beneficiary who inherited a plan account in 2020-2023 and did not provide the required certification by the October 31 deadline has until October 31, 2025 to do so.