SECURE Act Stretch IRA Q&As

The SECURE Act eliminated the so-called “stretch IRA,” which modifies the required minimum distribution rules with respect to inherited DC plan and IRA balances upon the death of the account owner. Under the legislation, distributions to individuals are generally required to be distributed by the end of the 10th calendar year following the year of the employee or IRA owner’s death, but certain exceptions are provided.

 

Q1: Clarification as to minors when they become age of majority. Is it age by state, original IRA owner’s state or the child’s state of residence? Is it the state of residence at the time that original IRA owner died? What if the child moves? I heard something about age 26 dependent like health insurance. All of this is for children, not grandchildren or any other minors, correct?

A1: According to previous IRS regulations regarding rules applicable to DB payments made to a surviving child, a child may be treated as having not reached the age of majority if the child has not completed a specified course of education and is under the age of 26. The IRS will need to provide guidance as to whether that standard applies to the new RMD rules for designated beneficiaries. What is clear is that this is only for children. It does not apply to grandchildren or other beneficiaries.

Q2: Clarification as to disabled beneficiaries. Does the exception apply to someone who has received a letter of permanent disability from the Social Security Administration? I heard that it was only for a disabled beneficiary listed in special needs trusts.

A2: See Code Section 72(m)(7) with further detail provided through Treas. Reg. 1.72-17 for further clarification which provides nine examples of impairments which would ordinarily be considered as preventing substantial gainful activity.

Q3: Clarification as to chronically ill beneficiaries. How do you define chronically ill? Old and sick people would each answer this question differently.

A3: See Code Section 7702B(c)(2) with a certified indefinite loss of functional capacity for at least two activities of daily living to include: eating, toileting, transferring, bathing, dressing and continence.

Q4: Does this mean the money needs to be moved to the beneficiary’s name or does the money need to be distributed and taxes paid on the distribution?

A4: The money should be distributed.

Q5: Is the child exception only for children or also for grandchildren?

A5: The law only refers to children, not grandchildren. 

Q6: Which government plans are included for the delayed “stretch” effective date? Does the delay refer to 457 and 403 plans or government plans under Section 414(d), or both?

A6: It’s only for governmental plans defined in Section 414(d).

Q7: Facts: A participant was born after June 30, 1949, and would have turned 70½ in 2020, so he would not have been due an RMD until he was age 72. However, he died in December 2019. His spouse is the beneficiary. Question: Can the surviving spouse delay distributions until the participant would have been due an RMD, i.e. when the participant would have turned age 72? Or, do the old RMD rules apply since his death occurred prior to enactment of the SECURE Act and the surviving spouse must start distributions by the end of the year in which the deceased participant turned 70½, i.e. the end of 2020? 

A7: The spouse could take RMDs over her life expectancy because she is an eligible designated beneficiary.

Q8: Beneficiary of a beneficiary: If a spouse takes a death benefit as his or her own, then the distribution to the children is still as an initial beneficiary. Correct?

A8: No. A beneficiary of a beneficiary is subject to the 10-year rule and the children aren’t treated as eligible designated beneficiaries (i.e., the exception to the 10-year rule doesn’t apply).

 

The topics addressed on this page are for information purposes only and should not be construed as specific tax or retirement plan advice. Individuals should consult a tax advisor or attorney for questions regarding specific tax or legal needs.