In January 2020, the SECURE Act went into effect, significantly changing the rules for retirement accounts. In January 2022, we got SECURE 2.0. Then, later in 2022, we got “proposed regulations” from the IRS contradicting parts of the original SECURE Act. More than four years after the original legislation, in July 2024, we got the final regulations clarifying the new rules.
The combination of the SECURE Act, SECURE 2.0 and the final regulations released in July creates a nearly impossible maze to navigate when it comes to distributions from inherited accounts. Before we look at these insanely complicated rules, we must define a few things.
Key definitions
Eligible designated beneficiary (EDB). In most cases, this will be the spouse inheriting the retirement account, but it’s not just spouses. According to the IRS, an eligible designated beneficiary is:
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- A spouse or minor child of the deceased account holder
- A disabled or chronically ill individual
- An individual who is not more than 10 years younger than the IRA owner or plan participant
Non-eligible designated beneficiary (NEDB). If you are not an eligible designated beneficiary, you are an NEDB. This is most commonly adult children. The rules are more complicated for you.
Required beginning date (RBD). This is the age at which the original account owner must begin taking their own required minimum distributions (RMDs). This used to be 70.5 for everyone. However, SECURE and SECURE 2.0 introduced age brackets based on year of birth:
| DOB/Birth Year | First RMD |
| 6/30/49 or earlier | 70½ |
| 7/1/49-12/31/50 | 72 |
| 1951-1959 | 73 |
| 1960 and later | 75 |
Inheriting IRAs: Four common scenarios
Below, we outline the most common scenarios we see with our clients. Please note: These are all for traditional IRAs. Roth accounts have their own rules.
1. Spouse inheriting an IRA before RMDs start for the original owner (this is the RBD) (EDB)
- Inherited IRA stretch. If you choose this option, you will have to start taking distributions by the later of December 31 of the year following the year of death, or December 31 of the year the owner would have hit their RBD. This option allows for small distributions over the rest of your life.
- Inherited IRA 10-year rule. The only thing the IRS cares about in this scenario is that the account is completely emptied by December 31, 10 years after the year of death. For example: The owner dies on January 15, 2020. The spouse must take all the money out by December 31, 2030.
- Spousal transfer. You move the money into your own IRA and treat it as your own. All the same rules apply as they would if it had always been your account.
2. Spouse inheriting an IRA after RBD (EDB)
- Spousal transfer. Almost exactly the same as the scenario above, except that you do have to take the RMD due for the year of death, for the original owner. For example: If the decedent had not taken their $40,000 RMD for the year they died, it is your responsibility to take it (I’m sure you were looking for another item to add to your to-do list …). Once that RMD is taken, the IRA is treated the same as the rest of your IRA account(s). This is an option only if you are the sole beneficiary.
- Inherited IRA stretch. You must still make sure that you take the owner’s year-of-death RMD, but in the following year you will calculate your annual RMD based on the IRS single-life expectancy table.
3. Adult child (NEDB)
- Before RBD. Money will be rolled into an inherited IRA. There is no annual RMD requirement except in the year of death. However, the entire balance must be distributed by December 31, 10 years after the year of death.
- After RBD. Money will be rolled into an inherited IRA. There is an annual RMD requirement in years one to nine, post-death. This amount is based on the IRS single-life expectancy table.
4. Disabled adult child (EDB)
Disabled adult children essentially follow the rules prior to the SECURE Act. They can stretch distributions over their life expectancy, using the IRS single-life tables.
The bigger picture: Tax planning
Hey, don’t shoot the messenger! I left out some of the even more complex rules around trust and successor beneficiaries that our firm is also tracking for our clients. There is a bit of silver lining here: The SECURE Act went into effect on January 1, 2020. However, these final regulations didn’t come out until July 2024. So, if you read one of the above scenarios and thought, “Uh-oh, I haven’t been taking distributions,” that’s OK. They were waived for 2020-2024. However, that 10-year clock is still ticking.
I must now zoom out to bigger-picture planning, as I often do. Much of the work and the pain of RMDs has to do with the associated tax bill. We project out RMDs in our planning software to see the tax trend and then use standalone tax planning software to do the actual calculations. This means that when there are legislative changes, the software needs to be updated. Be sure your planner has updated theirs. Also, be sure the inputs in the plan are correct, including the original owner’s DOB and DOD. Otherwise, your numbers will be wrong.
If you want to use a free version of our planning software, you can access it here.
Related Content
- What to Know Before You Inherit an IRA
- Inherited an IRA? Five Things Every Beneficiary Should Know
- IRS Ends Inherited IRA Confusion: Annual RMDs Required for Many
- Leaving an Inheritance? Is It Better to Give to Kids Now or Later?
- Four Ways to Give Money Tax-Free to Your Kids When You Die
-
What to Know About Portable MortgagesA closer look at how portable mortgages would work, who might benefit and why the concept is gaining attention amid high rates and limited supply.
-
10 Cities Where Grocery Prices Are HighestThese 10 cities are paying up to 33% more than the rest of the country to keep food on the table.
-
Ask the Editor, November 14: 20% Qualified Business Income DeductionAsk the Editor In this week's Ask the Editor Q&A, Joy Taylor answers questions on the 20% tax deduction for qualified business income or QBI.
-
Medicare to Cover Obesity Drugs Under Trump Deal for as Little as $50. What You Need to KnowTrump's deal slashes GLP-1 drug costs for Medicare beneficiaries and others, unlocking coverage for millions with obesity and related conditions.
-
Here's How to Plan This Year's Roth Conversion, From a Wealth ManagerWhile time is running out to make Roth conversions before the end of the taxable year, consider taking your time and developing a long-term strategy.
-
Four Times You Need a Second Opinion on Your Financial PlanIs your financial plan fit for purpose — or is your adviser peddling an outdated strategy? When you see these red flags, it's time for a second opinion.Evan
-
'But It's Not My Fault!': Your Insurance Company Absolutely Will Blame You in These Five ScenariosInsurance companies care about 'fault' in more ways than you think — from payment mishaps to your neighbor's landscaping — so it's on you to manage the risks.
-
Dow Dives 797 Points as Government Opens: Stock Market TodayThe process of pricing and re-pricing realities old and new never stops, and next week promises to be at least as exciting as this week.
-
3 Ways High-Income Earners Can Maximize Their Charitable Donations in 2025Tax Deductions New charitable giving tax rules will soon lower your deduction for donations to charity — here’s what you should do now.
-
Cash In on Your Medicare Advantage Flex Card Perks Before They DisappearWith the 2025 rapidly coming to a close, here's how Flex Cards work and a guide on the best items to stock up on before December 31.
