RDL: SECURE Act of 2019

[Kathleen Reynolds]

#3437

The program is updated to include several changes that were enacted when the Secure Act of 2019 was signed.

For plan owner’s still alive, the Required Minimum Distributions age was changed from 70.5 to 72. For 2020, owners born on 6/30/1949 and earlier would continue their required distributions as they were before the Secure Act was signed (this is because they were already in RMD status at the end of 2019). Plan owners born on 7/1/1949 and later will start their Required Minimum Distributions at age 72.

Inherited IRAs where a non spousal beneficiary is designated

For plan owners that died on 12/31/2019 or earlier, the pre Secure Act rules will apply. A term certain distribution period is established based on the designated beneficiary’s single life expectancy in the year after the owner’s death. Unlike Situation 2, in this case the term is based on a life expectancy calculated in the year after the owner’s death, rather than the year of death. For example, if the owner died in 2019, the life expectancy used as the divisor in 2020 would be the beneficiary’s single life expectancy in 2020. In 2021, the divisor used would be 2020’s number minus 1. The life expectancy in the year after death is, of course, calculated using the new single life expectancy table, and, as with Situation 2, an existing term certain would have to be recalculated using the mortality table.
For plan owners that died on 1/1/2020 or later, the plan balance must be completely distributed by the 10th anniversary year of the plan owner’s death. There are exemptions to this rule:

• The beneficiary is disabled
• The beneficiary is chronically ill
• The beneficiary is less than 10 years younger than the plan owner
• The beneficiary is a legal minor child of the plan owner. In this case, for the years until they reach majority of age, they would receive distributions based on the life expectancy calculated in the year after the owner’s death (pre Secure Act rule). Then after they reached Age of Majority, they would no longer have the exemption status, and would be subject to the 10 year payout rule 10 years after they reached Majority Age.
• A spouse is exempt from the 10 year payout rule.

When an exemption is applicable, the RMD calculation will be based off the pre Secure Act rules, where the life expectancy of the beneficiary will essentially stretch the distributions.

Disclaimer: The SECURE Act did not change the beneficiary options for a non-designated beneficiary. Neither did it change the September 30 deadline for determining if a retirement account has a designated beneficiary. As a result, if a non-designated beneficiary is one of multiple beneficiaries that remain as beneficiary as of September 30, of the year that follows the year in which the retirement account owner dies, all of those beneficiaries could be subject to the options available to the non-designated beneficiary.

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