SECURE Act Requires Action if a Trust is Your IRA Beneficiary

By Sarah Brenner, JD
IRA Analyst

Many IRA owners have named trusts as their IRA beneficiaries. You may be one. Trusts offer control from the grave and can be a smart choice, especially to protect beneficiaries who may be minors, have special needs or simply are not good with money. Naming a trust as an IRA beneficiary has always had its problems. The rules are complicated, and having a trust drafted and administered can come with a hefty price tag. The ability to stretch RMDs over a trust beneficiary’s lifetime, however, was often enough to outweigh the negatives. The SECURE Act changes this equation.

Enter the SECURE Act

Under the SECURE Act, most beneficiaries will no longer get the stretch. Instead, most beneficiaries, including trusts, will be subject to a 10-year payout rule. That means all the funds in the inherited IRA must be paid out either to the trust or the trust beneficiaries within 10-years. Keeping the inherited IRA intact and using the stretch to pay annual RMDs to a trust is now a relic of the past.

Because trusts were often drafted with the goal of using the stretch in mind, under the SECURE Act, many trusts will no longer work as planned. Many include language that will result in faster than expected payouts or larger than expected tax bills.

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Starting this month, IRA expert Ed Slott is taking questions about Individual Retirement Accounts on AARP!

"Did the SECURE Act Kill the Stretch IRA?"
By Ed Slott

Years ago, I followed your recommendations regarding setting up a stretch IRA. I understand that the SECURE Act has eliminated that provision to pay for the rest of the act's benefits. What suggestions do you have going forward? —J.F.

I'm going to assume you mean that you are the IRA owner and you are referring to setting up your IRA so that your beneficiaries can take advantage of the stretch IRA. (If you are the beneficiary, the SECURE Act has no effect on you since the section that eliminated the stretch IRA applies only to those who inherit in 2020 or later.)

Let's start by explaining what the stretch IRA is and what changed.

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Q: In looking at information regarding the exceptions for inherited IRAs under the SECURE Act, Financial-Planning.com cited your company as a source to say “minors-but not grandchildren” are part of the exception. However, I cannot find on the IRS site or any other for that matter that says grandchildren who are minors are NOT excluded. Can you please provide the source for this? Our firm would like to make all staff and advisors aware of this.

Answer

Q: I understand that you can make up to a $100,000 withdrawal from my IRA for a qualified charity. Does the withdrawal for the charity have to be a once-per-year event, or can it be monthly, quarterly, etc., so long as the total does not exceed $100,000?

Answer

Q: Can a QCD be used to pay dues to a charitable organization?

Answer

Q: A husband has an inherited IRA (from his dad prior to the SECURE Act) and was taking RMDs using the single life table. Then the husband passes away in 2020, leaving the inherited IRA to his wife, who is age 65. What are the wife’s options for distribution?

Answer

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