From the desk of Dean S. Mailhes, CFA & Justin Mailhes, CFP

One of the major provisions of the 2019 SECURE Act dealt with changes to distribution rules for Inherited IRAs, not left to a spouse. Before the SECURE Act, non-spouse beneficiaries had to take annual required minimum distributions from their inherited IRA but could base that on their life expectancy. In many cases this could have been 30 or more years.

Unfortunately, the SECURE Act now requires a non-spouse beneficiary to deplete the account in 10 years. Distributions can be made anytime during the 10-year period if the account is depleted by the end of year 10. This generally means higher taxes over a shorter time for IRA Beneficiaries.

The IRS threw another curve ball in 2022 when they issued an interpretation of the SECURE Act. Basically, they said that if the original IRA owner was taking Required Minimum Distributions (RMD) at the time of death then the non-spouse beneficiary had to continue to take RMDs in years 1-9. These RMD’s, could be based on their life expectancy, but they could no longer wait until the end of year 10 to take distributions.

This interpretation was met with much confusion from the public and the IRS extended the requirement until 2023. In July of this year, they extended it again until 2024. As of today, these RMD’s will start next year and with the penalty for non-compliance at 25% of the missed distribution it is something to be aware of!

The bottom line is that IRA distribution rules have become more complicated when made to non-spouse beneficiaries. Different strategies may come into play when discussing when and how much money to take from the IRA.

We are here to help, so contact us anytime to review your situation.

Sincerely,

Dean S. Mailhes, CFA        Justin Mailhes, CFP®