The SECURE (Setting Every Community Up for Retirement Enhancement) Act was passed in 2019, effective 2020. The act established a new 10-year rule, requiring certain beneficiaries to withdraw their entire inherited retirement account balance by December 31 of the 10th anniversary of the owner’s death. As an example, if the retirement account owner died on January 1 of 2020, the beneficiary, if affected by the rule, would have to withdraw every penny by December 31 of 2030. The IRS will impose a 50% penalty on any balance that remains after the deadline.
Some beneficiaries, known as Eligible Designated Beneficiaries*, follow different rules. ACG’s Chief Actuary, David Kupstas, wrote a comprehensive overview of potential scenarios that could affect you.
There is a reason why the 10-year rule was established; to generate more tax revenue for the federal government. Every distribution you take from an inherited retirement account could potentially increase your taxable income. It is also possible the increase in taxable income could affect Medicare premiums, financial aid for college, and create other issues. It is important to put a carefully crafted plan in place to address the complexities of taking an inherited retirement account distribution.
* Eligible Designated Beneficiary
- Generally exempt from the 10 year rule
- Includes spouse, disabled and chronically ill beneficiaries, minor children of the account owner, and beneficiaries who are less than 10 years younger than the owner