Skip to Content

If you’ve inherited an IRA since the beginning of 2020, a recent IRS publication may affect your plans for taking distributions under the SECURE Act’s “10-year rule.” Here’s what you need to know.

Family sitting in a living room couch together with their two kids.Starting in 2020, the SECURE Act changed the required minimum distribution (RMD) rules for many individuals inheriting an IRA from that year forward (but didn’t apply for inherited IRAs already in place). While certain “designated beneficiaries” were still able to “stretch” the IRA over their lives, the new rules significantly impacted most nonspouse beneficiaries. For this group, the change meant beneficiaries would have to empty the IRA by the end of the 10th year after the original owner passed.

At the time the SECURE Act took effect, many industry experts interpreted the guidance as allowing inherited IRA owners full flexibility to choose when distributions occurred. In other words, as long as the account was empty by the end of year 10, the opinion was it didn’t matter how and when distributions occurred. This view was informed by the SECURE Act language, committee reports, and via precedent of a preexisting “five-year rule” applicable to certain circumstances.

However, the recently published 2020 IRS Publication 590-B has altered interpretation of the SECURE Act provisions. According to the new instructions, those inheriting IRA’s starting in 2020 must distribute a minimum amount each year, using the same process and calculation in place prior to the SECURE Act. The only change, therefore, is that whatever remains in year 10 must be completely distributed at that time.

While the end result is the same (the IRA only exists for 10 years), the flexibility to defer distributions completely in a given year has been removed. As a result, nonspouse beneficiaries who inherited IRAs in 2020 should be aware that, as of now, an RMD will be required by the end of 2021.

Nonspouse beneficiaries who inherited IRAs in 2020 should be aware that, as of now, an RMD will be required by the end of 2021.

It’s possible the IRS will further clarify its guidance and revert back to what was generally expected prior to release of Publication 590-B, so if you’re in the affected group, we suggest contacting your advisor to discuss the best timing for an RMD in 2021.

If no clarification from the IRS is provided by the end of the year, it will be important to calculate and take the RMD to avoid steep penalties — 50% of the required amount not taken.

We’re watching this issue as the year progresses. In the meantime, if you have any questions, contact your relationship manager to discuss your options.

Looking for expert advice?

Subscribe now