The opinions voiced The old “stretch” rules still apply. Since he passed away after January 1, 2020, you would be required to distribute the full IRA balance prior to December 31, 2030. Stop! unmanaged and cannot be invested into directly. The most impactful change is the partial elimination of the “stretch IRA.” Starting in 2020, for IRAs passing to most non-spouse beneficiaries, the entire retirement account balance must be distributed by the end of the 10th year following the year after the owner’s death. for any individual. Inherited IRA: Non-Spouse Beneficiary. You can still generally stretch out required minimum distributions (RMDs) over your lifetime. S. Joseph DiSalvo, ChFC®, and Marie L. Madarasz, AIF®, authors of Income for Life, a Retiree's Guide to Creating Income from Savings, are experts specializing in all aspects of retirement income planning including the coordination and integration of their clients' income, investment, and tax planning strategies. Rollover the balance to an inherited IRA and stretch the distributions from the retirement account over their lifetime. With people inheriting pre-tax retirement accounts with balances higher than we have ever seen and the complex rules that govern them, the stakes have never been higher to understand the pitfalls and opportunities available and how best to proceed given their individual financial circumstances. Example 2:  On December 15, 2019, you father passed away and you are listed as the beneficiary on his 401(k) account. You are also grandfathered in under the old rules if: Even beyond 2020, the beneficiaries listed above will still have the option to rollover the balance into their own inherited IRA and then stretch the required minimum distributions over their lifetime. There is no guarantee that a diversified portfolio will enhance overall returns or 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. Securities offered through American Portfolio Financial Services, Inc (APFS). Those who inherit a retirement account in 2020 or after should think through the impact of the new 10-year rule and discuss options with their financial advisor. Now, unless you love paying taxes, very few people would elect to distribute a large pre-tax retirement account balance in a single tax year but the new rules give you a decade to coordinate a distribution strategy that will help you to manage your tax liability under the new rules. Hi, I’m Michael Ruger. It must name the original account owner in the title and indicate that it is an inherited IRA. It is not uncommon to see balances in these accounts well over a million dollars. This rule also applies if you have inherited a Roth IRA, although any inherited Roth IRA distributions will not be taxable. All performance referenced is historical and is no guarantee of future results. Impact of the new rules on minor children beneficiaries, Tax traps awaiting non spouse beneficiaries of retirement accounts, Take a full distribution of the retirement account within 5 years. Post SECURE Act, for most non-spouse beneficiaries, the 10 year pay-out rule is in place with these exceptions: you are a minor child (NOT a grandchild) of the original owner; are not more than 10 years younger than the original owner; or you are disabled/chronically ill as defined by the Internal Revenue Code. Uncle Sam has been waiting for his share for decades! They are strong advocates of financial education, seeking to teach others how to achieve sustained success and lifelong prosperity. Unfortunately, with the passing of this law, Congress took away one of the most valuable distribution options available to non-spouse beneficiaries called the “stretch” provision. 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. How Pass-Through Income Will Be Taxed For Small…, How Rental Income Will Be Taxed In Years 2019+. Greenbush Financial Group, LLC Although the timeframe for a full distribution is condensed, you will have significant flexibility in how to access the IRA over the 10-year period. If you have an inherited IRA received from a loved one prior to 2020, nothing changes for you. A huge benefit! to investing. Investment advisory services offered through Greenbush Financial Group, LLC. Note: The age of majority varies by state. However, if you inherited an IRA from someone who is not your spouse you cannot roll the account into your own IRA or treat the IRA as your own. This article will cover: The SECURE Act’s elimination of the stretch provision will have a big impact on non-spouse beneficiaries. Although you are able to do so, do not take a full distribution of an inherited retirement account unless you are sure that is what you want to do. 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. 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. On the flip side, the stretch option allowed these beneficiaries to move the retirement account balance from the decedent’s retirement account into their own inherited IRA tax and penalty free. I created the blog because there are a lot of events in life that require important financial decisions. Will Home Equity Loan Interest Be Deductible In 2019+? Example 3:  On February 3, 2020, your uncle passes away and you are listed as a beneficiary on his Rollover IRA.