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?
When an IRA or retirement plan owner reaches a particular age, that account owner typically must begin taking required minimum distributions (RMDs.) The RMD is calculated based on the year-end account balance divided by a life expectancy factor. Of course, there is a parade of variables to consider, including:
If you are subject to required minimum distributions (RMDs) and have annuitized part of your IRA, a recent law change could drastically reduce your RMDs. But, without IRS guidance, it may be difficult to take advantage of that change.
The IRS unleashed massive confusion last year. To the surprise of many, it released proposed SECURE Act regulations requiring beneficiaries (on some occasions) to take required minimum distributions (RMDs) during the 10-year payout period.
On July 17, we reported that the IRS had issued required minimum distribution (RMD) relief in two situations. First, the Service excused 2023 RMDs for certain IRA (and plan) beneficiaries subject to the 10-year payout period. Second, it extended the 60-day rollover deadline for retirement account owners born in 1951 who erroneously received distributions in 2023 that weren’t necessary because their first RMD year had been delayed from 2023 to 2024 under SECURE 2.0.
For deaths in 2020 or later, we know that a non-eligible designated beneficiary (NEDB) of an IRA is subject to the 10-year rule. Meaning, the account must be emptied by the end of the tenth year after the year of death. In its proposed SECURE Act regulations, the IRS takes the position that when death occurs on or after the required beginning date (RBD – generally April 1 of the year after a person turns 73), an NEDB must also take annual required minimum distributions (RMDs) in years 1 – 9 of the 10-year period.
It looks like IRA owners will probably have to wait awhile to take advantage of a new program that allows them to self-correct IRA errors that previously couldn’t be fixed. In Notice 2023-43, the IRS said that self-correction for IRAs can’t be used until the IRS issues rules for the new program. And those rules aren’t required to be issued until the end of December 2024.
This past week the Ed Slott team hosted another successful conference for our Elite IRA Advisor Group members. Well over 300 advisors from across the country descended on Washington D.C. for two days of intense IRA training. In addition to discussing all the newest SECURE 2.0 rules, we made sure to cover the foundational beneficiary principles created by the original SECURE Act, which went into effect in 2020. It is our steadfast belief – and our member advisors agree – the best way to learn new concepts is through repetition and reinforcement.
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