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The agency has clarified that account inheritors must take distributions annually over a maximum of 10 years .

By Ben Mattlin

Then came the SECURE Act of 2019 , which changed everything . After this law passed , most inheritors of these accounts had to liquidate them within 10 years after the accounts had passed into their hands .

What was left unclear , however , was whether they had to take the distributions at any point before the 10 years were up . In July , the Internal Revenue Service delivered its final ruling on the matter , and the news was disappointing to many beneficiaries : Most of those who have inherited a retirement account since 2020 must take minimum distributions every year if the original owner was already old enough to be taking the required minimum distributions . And the beneficiaries must withdraw whatever is left over by the end of the 10th year .

“ The industry generally saw this coming ,” says Gianna Giusti at Kutscher Benner Barsness & Stevens in Seattle . Two years ago , the IRS released proposed regulations that indicated what would happen , she says . But in certain cases , she adds , it had made sense for clients to delay distributions just in case things went differently . “ For instance , if a client was on the verge of retiring , we might have encouraged them to … begin distributions upon retirement . Now we don ’ t have that option .”

The required annual distribution is a minimum amount that ’ s calculated by dividing the IRA ’ s balance at the end of the previous year by the owner ’ s remaining life expectancy ( using the

IRS ’ s actuarial data ). Giusti points out that clients could actually take larger distributions , which might be advantageous in low-tax years . “ For every beneficiary , the best path is going to depend on their tax profile ,” she says .

The 10-year rule , however , does not apply to spouses who inherit an IRA or 401 ( k ). RMDs do not apply to inherited Roth IRAs , experts add . Another exception is if the original account owner died before RMDs kicked in . The age at which RMDs must be taken by the original account owner has been going up in recent years . This year it ’ s 73 .

The 10-year rule doesn ’ t apply to those who inherited before 2020 , advisors say ; they still have to take required minimum distributions , if they are otherwise eligible , but they can spread the distributions throughout their lifetime . Still , say advisors , for those who aren ’ t eligible to spread out distributions , the rule is retroactive to 2020 . It applies to nonspouses who inherited retirement accounts since the SECURE Act went into effect .

On a happier note , the rule specifically excuses from past due amounts those who did not take RMDs between 2021 and 2024 — before the final rules were clarified . “ We have been alerting our clients about the possible need to take RMDs during the 10-year period ,” says Avery Neumark , senior consultant to

52 | FINANCIAL ADVISOR MAGAZINE | SEPTEMBER 2024 WWW . FA-MAG . COM