A mere 26 months after passage of the SECURE Act, the IRS has kindly blessed us with 275 pages of regulations to address all of our lingering questions. 

As you know, one of the more consequential effects of the SECURE Act was the modification of the time period in which the beneficiary of an inherited IRA must withdraw the assets – a change from withdrawals over the beneficiary’s life expectancy to full distribution within 10 years. 

A question that has arisen often since the passage of the SECURE Act is whether distributions are required to be made to the beneficiary each year of the 10-year period, or whether an entire distribution in the final year will suffice.  We finally have our answer: it depends.  The analysis hinges largely on the classification of the beneficiary and whether the participant died before or after his or her required beginning date for distributions. 

First, some definitions:

“Required Beginning Date” Defined.  The term “required beginning date” means April 1 of the year after the participant turns 72.  So, if a participant turns 72 on July 4, 2022, the required beginning date is April 1, 2023.  If the participant dies before April 1, 2023, she died before her required beginning date; if the individual dies on or after April 1, 2023, she died on or after her required beginning date.   

“Common Designated Beneficiary” Defined.  The term “Common Designated Beneficiary” – a term I am using for simplicity that is not used by the IRS – refers to an individual who is not a surviving spouse, minor child, disabled or chronically ill individual, or less than 10 years younger than the participant.  Outside of a surviving spouse, the Common Designated Beneficiary classification is the most common, as this includes most adult children of the participant who are named as the beneficiary of an IRA.

Common Designated Beneficiary – Participant Dies Before Required Beginning Date.  If the participant died before his or her required beginning date, a Common Designated Beneficiary is not required to take any distributions until Year 10; the IRA may be withdrawn at any time (including in one lump sum) as long as the full amount is withdrawn by December 31 of the year that contains the 10^th anniversary of the participant’s death.

Common Designated Beneficiary – Participant Dies On or After Required Beginning Date.  If the participant died on or after his or her required beginning date, a Common Designated Beneficiary must take annual distributions over the greater of the beneficiary’s life expectancy or the participant’s life expectancy, and the full IRA must still be withdrawn by December 31 of the year that contains the 10^th anniversary of the participant’s death.  Therefore, for a participant that dies on or after his or her required beginning date, the Common Designated Beneficiary may not defer distributions until Year 10.

Surviving Spouse Beneficiary.  For a surviving spouse beneficiary, there are two primary options:

1. Spousal Rollover. The participant’s IRA rolls over to become the surviving spouse’s IRA; required minimum distributions are not required until the spouse turns 72, and then RMDs must be taken using the Uniform Life Table based on the spouse’s life expectancy, just as it would be for the spouse’s own retirement accounts.
2. Spouse as Beneficiary. If the surviving spouse does not roll over the IRA, the spouse must take distributions using the spouse’s life expectancy, recalculated annually, and required distributions must start when the participant spouse would have reached age 72 (or the year following the death, if the participant was already 72).  Any successor beneficiary to the spouse must take distributions by the end of the spouse’s life expectancy or 10 years after the spouse’s death, whichever comes first.

Minor Children Beneficiary.  Regardless of whether the participant died before, on, or after his or her required beginning date, a minor child beneficiary must take annual distributions over the beneficiary’s life expectancy, and the full IRA must then be distributed by December 31 of the year that contains the 10^th anniversary of the beneficiary’s 21^st birthday.  Therefore, if a 10-year-old is the beneficiary of a parent’s IRA, the child must take distributions annually based on his or her life expectancy and the full IRA must still be distributed by December 31 of the year the beneficiary turns 31. 

Other Beneficiary Classifications.  Not discussed in detail here are a number of other beneficiary classifications, including chronically ill or disabled beneficiaries, beneficiaries who are less than 10 years younger than the participant, or non-designated beneficiaries (e.g., the participant’s estate or a trust that does not qualify as a “see-through” trust).  The IRS regulations also provide clarity on each of these classifications, although I have not included specifics here for the sake of brevity.  Regardless of the classification of the beneficiary or the age of the participant at death, the requirements for each beneficiary should be reviewed on a beneficiary-by-beneficiary basis.

I also note that the foregoing is based on interpretations of the SECURE Act and IRS regulations and is always subject to change based on case law, IRS commentary and Private Letter Rulings, and updates to the statutes.