retirement

Navigating the SECURE Act and SECURE 2.0: Changes to Inherited IRA Rules and Guidance

Introduction to The Acts

Retirement planning underwent significant changes with the introduction of the Secure Act in 2020 and its subsequent enhancement, Secure 2.0, in 2023. These legislative updates brought about profound adjustments, especially concerning the rules governing inherited individual retirement accounts (IRAs). We will explore the reverberations of the secure act, highlighting key modifications, and delve into the additional guidance provided by the Secure 2.0 act.

Key Secure Act 2.0 Highlights

  1. Mandatory Distributions and Age Adjustments:
    • Distributions from IRAs, including those inherited, remain taxable income.
    • The SECURE Act raised the age for mandatory minimum distributions (RMDs) from 70 ½ to 72 for IRA owners.
    • SECURE 2.0 further extends the age for RMDs for original IRA owners from 72 to 73, with subsequent increases to 75 starting in 2033.
  2. Changes in the 10-Year Rule:
    • The SECURE Act introduced the 10-year rule for designated beneficiaries, replacing the previous stretch-out provision.
    • Under the 10-year rule, most designated beneficiaries must complete required distributions within 10 years of the plan participant’s death.
    • See-through trusts with individual designated beneficiaries are also subject to the 10-year rule.
  3. IRS Proposed Regulations and Notice 2022-53:
    • The IRS proposed regulations in February 2022 aimed to clarify distribution rules, especially concerning the 10-year rule.
    • Notice 2022-53, issued in October 2022, further clarified these regulations, stating that they would become final in 2023.
  4. Surviving Spouses and Eligible Designated Beneficiaries:
    • Surviving spouses receive favorable treatment, with options to become the new owner of the IRA, roll it into an existing IRA, or remain an inherited beneficiary.
    • Eligible designated beneficiaries, including surviving spouses, disabled individuals, chronically ill individuals, and those not more than 10 years younger than the deceased, generally have the option to stretch out minimum distributions over their lifetimes.
  5. Changes in RMD Schedule for Surviving Spouses:
    • Surviving spouses must now elect to treat an IRA as their own by the end of the calendar year when they reach age 72 or the end of the calendar year following the plan participant’s death.
    • The February 2022 proposed regulations offer surviving spouses the choice of the 5-year or 10-year rule.
  6. Special Considerations for Disabled and Chronically Ill Beneficiaries:
    • Disabled beneficiaries must provide proof of disability, meeting specific criteria outlined in the IRS regulations.
    • Chronically ill beneficiaries must obtain certification from a licensed healthcare practitioner, indicating the inability to perform certain activities of daily living.

Understanding the intricate web of regulations surrounding inherited IRAs is crucial for beneficiaries and financial professionals alike. The SECURE Act and subsequent SECURE 2.0 Act have reshaped the landscape, requiring careful consideration of age, beneficiary status, and proposed IRS regulations. Staying informed about these changes ensures effective estate planning and compliance with the evolving rules governing retirement accounts. If you are interested in hearing more about Estate Planning or Medicaid Planning, please contact our office.

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