FINANCE IN BRIEF: clarifying the new rules inherited from the IRA [Column] | Business

As we begin on the last day of February, it may be a good idea for IRA investors and potential beneficiaries to review the new rules associated with taxes and distributions required by beneficiaries. It is never too early to know the rules that could affect a beneficiary’s future financial plans.

Before 2020, understanding the Minimum Required Distributions (RMDs) was straightforward. A non-spouse beneficiary might take distributions during their expected life, which is called an expandable IRA. While the beneficiaries were much younger than the original account holders, Stretch IRAs minimized the taxes they had to pay on each distribution and provided a long period for the account to continue growing with a tax deferral. For a Roth IRA, the account would continue to grow tax free.

The SECURE (Setting Every Community Up for Retirement Enhancement) law, which was passed in December 2019, changed the way beneficiaries received money from inherited IRAs. After December 31, 2019, non-spousal beneficiaries who inherit Traditional or Roth IRAs must receive distributions for a 10-year period, which begins the year following the death of the owner of the IRA.

The new 10-year rule came into effect on January 1, 2020. Thus, it does not affect beneficiaries if the account holder died before December 31, 2019. There is no RMD to be taken each year in the 10- year …

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