The lunacy of IRA beneficiary payout rules continues to boggle the mind. As I guide advisors through the options available to their clients, various nuances present one unique scenario after another. Did the original IRA owner pass away before or after the establishment of the SECURE Act? How old was the person when they died? Who was the beneficiary? Is this a successor beneficiary situation? Ultimately, by following the individual fact patterns, definitive answers materialize.
Last Friday afternoon (August 25, 2023), the IRS gave employer plans two more years to comply with the controversial SECURE 2.0 rule requiring “catch-up contributions” for high-paid employees to be made on a Roth basis. The effective date of the rule was postponed from January 1, 2024 to January 1, 2026. The delay is set forth in IRS Notice 2023-62.
QUESTION:
Hello! I recently came across one of your articles and decided to reach out to you in hopes of getting some clarification re: the Secure Act 2.0 and distributions as a qualified public safety employee. In a nutshell, I am a 17-year career firefighter for a county government. With the new Secure Act 2.0, it seems as though I can take distributions after 25 years of service, OR age 50, whichever comes first, without penalty. If this is true, would I be eligible to begin taking distributions at age 47, without penalty?
We are often asked how the Roth IRA 5-year rule works. This is a borderline trick question because there is not one 5-year rule for Roth IRA distributions. There are actually two different 5-year rules. So, to avoid confusion, let’s talk separately about each 5-year rule.
Question:
I am struggling to find an answer to my situation. My wife’s 82-year old father passed away about 8 years ago and he was taking IRA distributions. A portion of his IRA was inherited. Since then, my wife had been taking RMDs based on her life expectancy as an old stretch IRA.
Question:
I’m age 76. My brother died in December 2022 at 84. Do I take required minimum distributions (RMDs) for the inherited account based on my age or on my brother’s age at death?
As already-complicated IRA rules spiral further into an abyss of confusion, it comes as no surprise that irregularities exist. Up is down and left is right. Green means stop, red means throw your hands up in exasperation.
Question:
Greetings,
If I have the beneficiaries on my IRA listed as my wife (50%) and two children over 21 (50%), is my wife still able to move her half of the IRA into her existing IRA when I am gone? Or does having the adult children as partial beneficiaries inhibit her ability to do a spousal rollover to combine it with her existing IRA?
Are you thinking of naming a child or grandchild as your IRA beneficiary? With the start of the SECURE Act in January 2020, the rules for inherited IRAs were upended. Prior to the enactment of the SECURE Act, naming a minor as a beneficiary was a good way to take advantage of the stretch IRA. A grandparent could name a young grandchild as their IRA beneficiary and distributions could be paid from the inherited IRA for decades over the long life expectancy of the beneficiary.
There is no doubt we have written about this topic in past Slott Report entries. Possibly many times. There is also no doubt that people continue to make this same error, over and over again. Such was the case recently when the Ed Slott team visited with 150-plus financial advisors from across the nation in Boston.
