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IRS Issues Proposed Regulations Affecting Inherited Retirement Accounts Under the SECURE Act

IRS Issues Proposed Regulations Affecting Inherited Retirement Accounts Under the SECURE Act

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The IRS has proposed regulations interpreting significant changes made by the SECURE (Setting Every Community Up for Retirement Enhancement) Act to how inherited IRAs and other retirement accounts can be treated by their beneficiaries, mostly relating to rules governing required minimum distributions (RMDs).

These “Proposed Regs” both update and fill in some of the details of rules that went into effect in on Jan. 1, 2020, with the passage of the SECURE Act.  The Proposed Regs, issued in late February 2022, apply to qualified plans, section 403(b) annuity contracts, custodial accounts, retirement income accounts, individual retirement accounts and annuities, and eligible deferred compensation plans.

Before the SECURE Act, the beneficiary of an inherited retirement account could stretch the period to take distributions based on their normal life expectancy (as determined under IRS mortality tables). But, as we noted in our previous article on the SECURE Act, the new law eliminated the ability to take distributions based on the beneficiary’s life expectancy by requiring distributions to designated beneficiary who is not an eligible designated beneficiary (EDB) to be completed within 10 years after the death of the retirement account owner (account owner). EDBs generally include surviving spouses, minor children of the account owner, disabled beneficiaries1 and beneficiaries less than 10 years younger than the account owner.

Highlights of the Proposed Regs include:

Required Beginning Date for Distributions

The Proposed Regs generally provide that the required beginning date for distributions is April 1 of the calendar year following the later of (1) the calendar year in which the account owner attains age 722 or (2) the calendar year in which the account owner retires from employment with the employer maintaining the plan.3

The SECURE Act amended the definition of required beginning date to apply with respect to account owners who attain age 70½ on or after January 1, 2020, which could be interpreted to require the account owner to live until age 70½ for the SECURE Act to apply.  The Proposed Regs clarify that if the account owner would have attained age 70½ on or after Jan. 1, 2020, but for the account owner’s death, and the account owner’s surviving spouse is the sole beneficiary, then distributions may be delayed until the end of the calendar year in which the account owner would have attained age 72.

Required Distributions to Beneficiaries of Account Owners Who Die After Jan. 1, 2020

The Proposed Regs provide that, if the account owner of a retirement account dies after Jan. 1, 2020, and before the account owner is required to begin taking distributions, then unless the beneficiary is an EDB (or is not a designated beneficiary), the account owner’s entire interest in the plan is required to be distributed by the end of the calendar year that includes the 10th anniversary of the account owner’s death (10 Year Rule). Distributions are not required to be taken during each of those 10 years, and distributions may be delayed until the end of the 10th year. If the beneficiary is an EDB (or is not a designated beneficiary), then the rules in effect before the SECURE Act apply, which were life expectancy for an EDB, if longer than 10 years, and 5 years for a beneficiary that is not a designated beneficiary, such as a charity or certain trusts and estates (5 Year Rule).

If the account owner began taking distributions prior to their death, the Proposed Regs provide that the designated beneficiary may determine the required minimum distributions based on the designated beneficiary’s life expectancy (rather than the account owner’s shorter life expectancy). However, the designated beneficiary (unless they are an EDB) must receive distribution of the account owner’s entire account balance by the end of the 10th year following the account owner’s death.

If the surviving spouse of an account owner is waiting to take distributions until the end of the calendar year in which the account owner would have attained age 72, and the surviving spouse dies before that date, the required minimum distribution rules are applied as if the surviving spouse were the original account owner.  However, that rule does not apply if the surviving spouse remarries but dies before the delayed distribution date (and accordingly, the delayed distribution rule is not available for a subsequent spouse of the account owner’s surviving spouse).

Statutory Effective Date of the Limitation on Beneficiary Life Expectancy Distributions

As mentioned above, the SECURE Act eliminated the ability to take distributions based on the beneficiary’s life expectancy, unless the beneficiary is an EDB.  The Proposed Regs provide that generally the SECURE Act applies if the account owner dies on or after Jan. 1, 2020.

However, if the account owner dies before Jan. 1, 2020, the Proposed Regs treat such account owner’s designated beneficiary as an EDB and following such designated beneficiary’s death, the SECURE Act applies as follows:

Clarifications Pertaining to Certain Categories of Eligible Designated Beneficiaries

The Proposed Regs clarify the following terms:

Trust as Beneficiary: The Proposed Regs retain the current requirements to be considered a “see-through trust.” There are two different types of see-through trusts: (1) conduit trusts and (2) accumulation trusts. The Proposed Regs define a conduit trust as a trust the terms of which provide that all plan distributions will, upon receipt by the trustee, be paid directly to, or for the benefit of, specified beneficiaries. An accumulation trust is defined as a see-through trust that is not a conduit trust. The Proposed Regs also provide additional guidance for determining which beneficiaries of a see-through trust are treated as beneficiaries of the account owner.

Identifiability of Trust Beneficiaries: The Proposed Regs modify the definition of “identifiability” of trust beneficiaries.   A trust will not be considered a see-through trust (and thus will be subject to the 5 Year Rule) unless its beneficiaries entitled to distributions from the account owner’s retirement account are identifiable from the trust instrument.

Multiple Designated Beneficiaries: The general rules under the Proposed Regs for multiple designated beneficiaries is that if at least one of them is not an EDB, then the account owner is not treated as having an EDB, and the account owner’s interest in the plan must be distributed under the 10 Year Rule.  If there are multiple designated beneficiaries and each designated beneficiary is an EDB, then distributions may be made using the life expectancy of the oldest EDB.

There are, however, two exceptions to these general rules:

  1. The first exception is for any trust in which at least one of the account owner’s designated beneficiaries is a child of the account owner who, as of the date of the account owner’s death, has not yet reached the age of majority.  In such a case, the account owner is still treated as having an EDB, and a full distribution of the account owner’s remaining interest is not required until the 10th year following the calendar year in which the oldest child of the account owner who is a designated beneficiary and who was a minor as of the employee’s death attains the age of majority (or the 10th calendar year following the calendar year of that child’s death, if earlier).  If there are multiple children who have not attained the age of majority, then distributions are determined using the life expectancy of the oldest child who is an EDB.
  2. The second exception to the general rule applies to what the Proposed Regs define as a “Type II Applicable Multi-Beneficiary Trust.” This is a trust the terms of which provide that no individual other than a disabled EDB has any right to the account owner’s interest in the plan until the death of all such EDBs.  In such case, the distributions are determined using the life expectancy of the oldest disabled individual.

The Proposed Regs generally apply for purposes of determining RMDs for calendar years beginning on or after Jan. 1, 2022, or to distributions on or after that date. For distributions for the 2021 calendar year, taxpayers must apply the existing regulations, but taking into account a reasonable, good-faith interpretation of the SECURE Act amendments; compliance with the proposed regulations will satisfy that requirement.

If you have questions about the proposed regulations, the SECURE Act, or any of the other issues discussed in this article, please contact a member of Gould & Ratner’s Estate Planning and Wealth Transfer Practice.




1For purposes of this article, disabled beneficiaries include chronically ill beneficiaries.  A chronically ill beneficiary is a beneficiary who has been certified by a licensed health care practitioner as (1) being unable to perform (without substantial assistance from another individual) at least two activities of daily living for a period of at least 90 days due to a loss of functional capacity, (2) having a similar level of disability as determined under IRS regulations prescribed in consultation with the Department of Health and Human Services, or (3) requiring substantial supervision to protect the individual from threats to health and safety due to severe cognitive impairment.

2The SECURE Act raised the age at which individuals must begin taking RMDs from their retirement accounts from 70½ to 72 for individuals born on or after July 1, 1949.

3For a 5-percent owner or an IRA owner, the required beginning date is April 1 of the calendar year following the calendar year in which the account owner attains age 72, even if the account owner has not retired.

4A beneficiary is treated as having predeceased the account owner if the beneficiary is treated as predeceasing the account owner pursuant to a simultaneous death provision or a qualified disclaimer.


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