Successor Beneficiary Options Before and After SECURE
By Chad Neumann, CIP, CISP, CHSP, CPTD
We had an IRA owner who died in 2015. His beneficiary was his spouse who died in 2019. She had named her son as the beneficiary on her inherited IRA. How do we calculate payments for the successor beneficiary?
Before the Setting Every Community Up for Retirement Enhancement (SECURE) Act passed in December 2019, the rules surrounding successor beneficiaries stated that the successor beneficiary must distribute the assets at least as rapidly as the original beneficiary. This means, in the case of your beneficiary, that if the spouse was taking payments over her life expectancy, the successor beneficiary would need to continue taking payments over her (the now-deceased spouse’s) remaining life expectancy. Because the original beneficiary died before January 1, 2020, the new beneficiary options under the SECURE Act would not apply to the successor beneficiary.
We have an IRA owner who died in 2019. She had named her spouse as the only beneficiary and, being under age 59½, he chose to take payments over his life expectancy and delay distributions, rather than treat the account as his own. We set up an inherited IRA and he named his two daughters as the beneficiaries of the inherited IRA. He has now died in 2020. What options are available for the daughters?
Although the IRA owner died in 2019, the original beneficiary died in 2020 so the new beneficiary distribution rules as defined in the SECURE Act would apply. This means that the two daughters would not be able to continue taking life expectancy payments over the father’s life expectancy. Instead, the two daughters would have until the end of the 10th calendar year following the original beneficiary’s (the father’s) death to remove the assets from the IRA (the 10-year rule).
We have an IRA owner who died in March of 2020. Her twin brother, who was the sole beneficiary of her IRA, died in May of 2020. Before he died, the twin brother established an inherited IRA and named his wife as the beneficiary of the inherited IRA. What options are available to his wife as the successor beneficiary?
Because the IRA owner died on or after January 1, 2020, the new distribution options for beneficiaries apply. Because the IRA owner’s original beneficiary (her twin brother) was less than 10 years younger than her, he is considered an “eligible designated beneficiary.” As such, he would have been allowed to take payments over his own life expectancy starting in the year after the year of death (2021). But because he died, his wife, as successor beneficiary of the inherited assets, must distribute the IRA by the end of the 10th calendar year after the year of the original beneficiary’s death. In other words, the successor beneficiary in this scenario would have until December 31, 2030, to remove the assets.
We have an IRA owner who died in February of 2020. His adult daughter, who was the sole beneficiary, later died in June of 2021. The daughter had established an inherited IRA and named her husband as the beneficiary of the inherited IRA. What options are available to her husband as the successor beneficiary?
Because the IRA owner died on or after January 1, 2020, the new distribution options for beneficiaries apply. The beneficiary of the original IRA owner was more than 10 years younger than the IRA owner, therefore, she does not meet the definition of an “eligible designated beneficiary.” As such, she was required to take distributions from the IRA using the 10-year rule. This means that she would have had until December 31, 2030, to remove the assets.
In this scenario, it is Ascensus’ interpretation of an admittedly vague statute that the husband as successor beneficiary is to continue with the 10-year rule of the original beneficiary. Under SECURE Act provisions, the successor beneficiary of a non-eligible designated beneficiary would be required to distribute the assets by the end of the 10th calendar year after the IRA owner’s death. Thus, the deadline to remove the assets in this scenario would remain December 31, 2030.
