When to Use Pre-SECURE vs Post-SECURE Beneficiary Rules
By Debbie Shipman, CIP, CISP, CHSP
When our financial organization is notified that an IRA owner died, how do we know which beneficiary rules—the ones before the SECURE Act or after—to follow?
The Setting Every Community Up for Retirement Enhancement (SECURE) Act, included in the Further Consolidated Appropriations Act, 2020, was signed into law in December of 2019, and made substantial changes to how beneficiaries receive inherited assets. The year of death is the determining factor for which set of options to offer a beneficiary. This is true no matter when your financial organization is notified of the death.
If an IRA owner died in 2019 but our organization was not notified until 2020, which beneficiary options are to be used?
Regardless of what year you were notified, if an IRA owner died in 2019, you must apply the beneficiary distribution options that were in effect in 2019, the year of death. These are the options for deaths that occurred before January 1, 2020, that follow the pre-SECURE Act beneficiary rules. Thus, the beneficiary options in this case will depend on 1) the type of IRA, 2) whether the IRA owner died before or on or after his required beginning date (RBD), and 3) what the relationship of the beneficiary is to the IRA owner.
If an IRA owner died in 2020 and our organization was notified in 2020, which beneficiary options are used?
Regardless of what year you were notified, if an IRA owner died in 2020, the beneficiary distribution options will be those in effect in 2020, the year of death. These are the options for deaths that occur on or after January 1, 2020, that follow the post-SECURE Act beneficiary rules.
In this case, the distribution options available depend on whether the human beneficiary is an “eligible designated beneficiary”, or, if the beneficiary is a nonperson, whether the IRA owner died before or on or after her RBD.
The bottom line is that the year of death is the determining factor in which set of distribution options are available to a beneficiary.
