In 2019, the original SECURE Act (Setting Every Community Up for Retirement Enhancement) significantly changed how beneficiaries inherit qualified retirement accounts, such as 401(k)s or IRAs. The SECURE Act 2.0, signed into law in December 2022, continues to build on those changes with new provisions that impact estate planning.
Here’s a brief overview of what beneficiaries need to know about the updated rules:
1. 10-Year Rule Clarifications
The SECURE Act introduced the “10-year rule” for most non-spouse beneficiaries, requiring them to fully withdraw funds from inherited accounts within 10 years of the original owner’s death. SECURE Act 2.0 clarified that for inherited accounts from a decedent who died after their required beginning date (when they were required to start taking minimum distributions), beneficiaries must take annual required minimum distributions (RMDs) during that 10-year window, rather than waiting until the end of the period to withdraw the full amount.
2. Changes to Required Minimum Distribution (RMD) Ages
The RMD age has been increased from 72 to 73 starting in 2023 for the original plan participant, and it will increase to 75 by 2033. This means retirement account holders will have more time before they are required to start taking distributions.
3. Impact on Eligible Designated Beneficiaries
Certain “eligible designated beneficiaries” (EDBs), such as spouses, minor children (with slightly different rules), disabled or chronically ill individuals, and beneficiaries not more than 10 years younger than the account holder, are still exempt from the 10-year rule and can continue to “stretch” the distributions over their life expectancy. Secure Act 2.0 has not significantly altered these provisions but emphasizes the planning opportunities available to these individuals (including protecting these beneficiaries with a retirement plan trust).
4. Roth 401(k) Changes
A new provision under SECURE Act 2.0 eliminates the RMD requirement for Roth 401(k) accounts starting in 2024. Previously, Roth 401(k) accounts were subject to the same RMD rules as traditional 401(k)s, although Roth IRAs were not.
The SECURE Act 2.0 introduces important changes for beneficiaries inheriting qualified retirement accounts. Understanding the 10-year rule, RMD changes, and exemptions for eligible designated beneficiaries is essential to maximizing the value of these inherited assets. If you are a beneficiary or anticipate inheriting a retirement account, it’s a good idea to review these new rules with an experienced estate planning attorney to ensure your financial strategy is aligned with these updates.
If you, a friend, or family member need help establishing or updating an estate plan or with a Retirement Protector Trust, please reach out to our Intake Department at 760-448-2220 or at https://www.geigerlawoffice.com/contact.cfm. We have offices in San Diego County (Carlsbad) and Orange County (Laguna Niguel), but we assist can families throughout California as well.
