On Dec. 20, 2019, the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) was signed into law with an effective date of Jan. 1. The notable changes to retirement plans (for purposes of this article, the term “retirement plans” will refer to individual retirement accounts (IRAs) and employer-sponsored, qualified retirement plans) that have provided much fodder for financial and tax professionals, as well as the news media, include:

  • Increasing the age on which required minimum distributions (RMDs) begin from 70½ to 72.
  • Allowing contributions to IRAs after 70½.
  • Modifying the rules for the ability by many designated beneficiaries to “stretch” the payments in an inherited IRA to a maximum of 10 years. An important point to remember about the 10-year payout period is that payments are not required to be made each year. Instead, the entire retirement plan must be paid out at the conclusion of the 10-year period so, arguably, the funds could remain in the retirement plan until the 10th year and be distributed all at once at that time.

Eligible Designated Beneficiaries

We also know that there are exceptions to the 10-year payout rule for “eligible” designated beneficiaries including surviving spouses, minor or disabled beneficiaries, and beneficiaries are who not more than 10 years younger than the retirement plan owner.

  • A surviving spouse maintains the ability to treat an inherited retirement plan as his or her own IRA, thereby beginning RMDs upon the year the retirement plan owner would have turned 72 and using the surviving spouse’s own life expectancy to calculate the RMDs.
  • A disabled or chronically ill beneficiary and a beneficiary not more than 10 years younger than the retirement plan owner can use his or her own life expectancy to calculate RMDs, which are required to begin the year following the year of the retirement plan owner’s death.
  • Minor children of the retirement plan owner and trusts for minor children of the retirement plan owner are not required to take distributions from the inherited IRA until the minor attains the age of majority, at which point the 10-year payout is to begin.