The non-spouse beneficiary was then only required to take small distributions each year from the account called a RMD (“required minimum distribution”) but was allowed to keep the retirement account intact and continuing to accumulate tax deferred over their lifetime. Previously, the Required Minimum Distribution (RMD) age for IRA distributions was 70½, but following the passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act in December 2019, the RMD age was boosted to 72.. The entire inherited IRA would then need to be fully distributed to them before the end of the calendar year of their 28th birthday. The tax rules are quite complicated. The goal is to help our readers avoid big financial missteps, discover financial solutions that they were not aware of, and to optimize their financial future. All indices are If a spouse is the sole beneficiary of a retirement account, one set of distribution rules apply. Meaning in extreme cases, the beneficiary could choose not to take any distributions from the retirement account for 9 years and then in year 10 distribute the full account balance. Jacob and Sarah would be able to move the balances from their parent’s retirements accounts into an inherited IRA and then just take small required minimum distributions from the account based on their life expectancy until they reach age 18. The SECURE Act was signed into law on December 19, 2019 and with it comes some very important changes to the options that are available to non-spouse beneficiaries of IRA’s, 401(k), 403(b), and other types of retirement accounts starting in 2020. The rules are slightly different if the beneficiary is the child of the decedent AND they are still a minor. PBGC makes three distinct types of payments to beneficiaries. Generally, a person designated by a pension plan participant, or by the plan's terms, to receive some or all of the participant's pension benefits upon the participant's death. If you are the non-spouse beneficiary of a retirement account and the decedent passed away prior to January 1, 2020, you are grandfathered in under the old inherited IRA rules. "Publication 590-B: Distributions from Individual Retirement Arrangements (IRAs)," Page 9, 11. Accessed June 7, 2020. Loss of property tax credits such as the Enhanced STAR Program. Under the old rules, if you did not move the money to an inherited IRA by December 31st of the year following the decedent’s death, you were forced to take out the full account balance within a 5 year period. This article will cover: The SECURE Act’s elimination of the stretch provision will have a big impact on non-spouse beneficiaries. The replacement of the stretch option with the new 10 Year Rule will impact most non-spouse beneficiaries in 2020. The options for Roth IRA beneficiaries are the same as those that apply to traditional IRA beneficiaries if the owner dies before the RBD. To determine which investments may be appropriate for you, consult your financial advisor prior of a deceased plan participant, it is important that you also designate a beneficiary. A designated beneficiary is a living person who is named as a beneficiary on a retirement account, who also does not fall within the definition of an eligible designated beneficiary. These include white papers, government data, original reporting, and interviews with industry experts. is very important, even if you have not yet begun to receive pension payments. I’m lumping financial planning into that mix because taking distributions from pre-tax retirement accounts increases your taxable income which could cause the following things to happen: You really have to plan out the next 10 years and determine from a tax and financial planning standpoint what is the most advantageous way to distribute the full balance of the inherited IRA to minimize the tax hit and avoid triggering an unexpected financial consequence associated with having additional income during that 10 year period. If a minor child inherits a retirement account from a non-parent, such as a grandparent, then they are immediately subject to the 10 year rule. Accessed June 8, 2020. Please feel free to contact us if you have any questions on the new inherited IRA rules. If you inherit retirement assets, be sure to check with your plan provider about your available options. There is no guarantee that a diversified portfolio will enhance overall returns or An Extended IRA allows a second-generation beneficiary to continue receiving the assets over the life expectancy used by the first-generation beneficiary. A defined-benefit pension plan requires an employer to make annual contributions to an employee’s retirement account. Non-spouse beneficiaries would utilize this distribution option to avoid the tax hit associated with having to take big distributions from pre-tax retirement accounts in a single tax year. Inherited from spouse. in this material are for general information only and are not intended to provide specific advice or recommendations Unlike the stretch provision that required the non-spouse beneficiary to start taking the RMD’s the year following the decedent’s date of death, there are no RMD requirements associated with the new 10 year rule. For instance, as discussed above, RMD regulations provide that a non-spouse beneficiary of a participant who dies before the RBD may distribute the assets over the beneficiary’s life expectancy or within five years after the participant dies.. If the beneficiary is a nonperson, such an estate or a charity, yet other rules apply. In 2020, they must use the table to determine the life expectancy for 2020. Accessed June 7, 2020. to investing. Previously, a non-spouse human beneficiary could distribute the assets over the life expectancy of the oldest beneficiary. Accessed June 8, 2020. A beneficiary can be any person or entity the owner chooses to receive the benefits of a retirement account or an IRA after he or she dies. Print the form below that applies to you, complete it, and mail it to PBGC: Call PBGC's Customer Contact Center (1-800-400-7242) to request a.