How the SECURE Act Impacts Successor Beneficiaries
By Sarah Brenner, JD
Follow Us on Twitter: @theslottreport
The SECURE Act has upended the rules for inherited IRAs. One area the new law completely changes is the rules for successor beneficiaries. Here is what you need to know:
Who are successor beneficiaries?
The successor beneficiary is the beneficiary of the original beneficiary.
IRA owners should always name a beneficiary on their IRA. The beneficiary form controls who gets the funds after the death of the IRA owner. This is because IRAs are not usually probate assets where the will determines who gets the money.
When you inherit an IRA as a beneficiary, it is a good idea to name your own beneficiary. That is how you can control who will get the money after your death. The beneficiary you name on your inherited IRA assets is called a successor beneficiary.
Before the SECURE Act, the old rules for successor beneficiaries allowed a successor beneficiary to “step into the shoes” of the original beneficiary. That meant that the successor beneficiary could continue to take RMDs from the inherited IRA over the original beneficiaries remaining life expectancy. That allowed the stretch to continue for many years.
10-Year Payout Rule for Successor Beneficiaries
The SECURE Act is a game changer for successor beneficiaries. Successor beneficiaries who inherit in 2020 or later do not get to continue the stretch. Instead, they are subject to the 10-year payout rule. This is true even if the original IRA owner died prior to 2020.
Example: Karen dies on November 1, 2019. She named her daughter, Melinda, age 48, as her beneficiary. Because Melinda inherited the IRA from her mother in 2019, prior to when the SECURE Act became effective, she is able to use the stretch and take RMDs over her life expectancy. She names her son, Duke, as her successor beneficiary. At Melinda’s death, Duke will not be able to continue to stretch RMDs over Melinda’s life expectancy. Instead, Duke will be subject to the 10-year payout rule.
Content Citation Guidelines
Below is the required verbiage that must be added to any re-branded piece from Ed Slott and Company, LLC or IRA Help, LLC. The verbiage must be used any time you take text from a piece and put it onto your own letterhead, within your newsletter, on your website, etc. Verbiage varies based on where you’re taking the content from.
Please be advised that prior to distributing re-branded content, you must send a proof to [email protected] for approval.
For white papers/other outflow pieces:
Copyright © [year of publication], [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] Reprinted with permission [Ed Slott and Company, LLC or IRA Help, LLC - depending on what it says on the original piece] takes no responsibility for the current accuracy of this information.
Copyright © [year of publication], Ed Slott and Company, LLC Reprinted with permission Ed Slott and Company, LLC takes no responsibility for the current accuracy of this information.
For Slott Report articles:
Copyright © [year of article], Ed Slott and Company, LLC Reprinted from The Slott Report, [insert date of article], with permission. [Insert article URL] Ed Slott and Company, LLC takes no responsibility for the current accuracy of this article.
Please contact Matt Smith at [email protected] or (516) 536-8282 with any questions.