Retirement Account Changes for Heirs

This is Tim blogging today about IRS guidance on the timing of required distributions from beneficiary IRAs. 

The 2019 Secure Act revised rules for retirement plans.  The IRS just issued preliminary guidance regarding the changes with final guidance expected by the end of the year.  This guidance impacts the timing required for withdrawal by heirs.

• Heirs who are spouses, someone less than ten years younger, and disabled individuals will continue to be allowed to take the withdrawals based on their own life expectancy using the IRS tables.

• Generally, for all other heirs the money must be taken out over ten years. It was thought that the withdrawal could be delayed until the tenth year. Under the new guidance:

  • Heirs subject to the 10-year rule are required to take annual withdrawals if the original owner died after the owners required beginning date for payouts (April 1 after the year the owner turned 72)

  • If the owner died before reaching the “required beginning date” the heirs do not have to take annual withdrawals.

  • Heirs of Roth IRA’s also do not have to take annual withdrawals.

  • If the heir is a minor child (but not a grandchild) the 10-year payout does not begin until the child turns 21. At that point, the 10-year clock starts to run. Use expected IRS life expectancy tables until that time.

• A required IRA distribution is required the year the account owner died as there is a 50% penalty for failure to do so.

Since the guidance is confusing, the consensus is to continue with current practice until final rulings are provided.  We are always happy to work through individual situations with you.