John Grobe

Just when we thought we understood the changes to retirement distributions from IRAs and employer plans (like the TSP) that were made by the SECURE Act, the IRS issued 275 pages of regulations that changed many prior interpretations of the Act. This article will look at two of the more significant changes.

Because these changes affect non-eligible designated beneficiaries, we should first take a look at what is considered to be an eligible designated beneficiary (EDB).
• A surviving spouse. Spouses will make up the vast majority of EDBs.
• Beneficiaries no more than 10 years younger than the deceased account holder. This would cover designated beneficiaries who are parents and many beneficiaries who are siblings.
• A disabled individual. A rigorous definition of disability will be used, and the beneficiary will have to provide evidence to support their claim of disability.
• A chronically ill individual. Like disability a hard to meet definition applies and the burden of proof is on the individual who is claiming to be chronically ill.
• A child under the age of majority. Note that this applies only to children, not to grandchildren who may be designated as a beneficiary.


An eligible designated beneficiary is allowed to withdraw money from the IRA or employer plan over their own life expectancy. On the other hand, a non-eligible designated beneficiary (NEDB) must empty the account by the end of ten years from the year of the account owner’s death.

Let’s start with a rule that clarifies things. The IRS has said that the age of 21 will be considered the age of majority when looking at whether or not a child is an EDB. Previously, it was assumed that the age of majority that applied in the state of the beneficiary’s legal residence would apply, and those ages vary from state to state. This rule also nixes the interpretation that the more generous Obamacare definition of majority (26) could be used. By the way, once the child reaches the age of majority, they have ten years from the year in which they reached that age to empty the account.

Now to a more confusing (or at least more complicated) rule. This rule applies to whether or not a NEDB will have to take required minimum distributions (RMDs) during the ten years they have in which to withdraw the money from the account. Originally, the thought was no; NEDBs wouldn’t have to take RMDs because the account was going to be completely emptied within ten years anyhow. Then, in guidance published last year, the IRS said that all NEDBs would have to take RMDs during the ten year period. Later in the year, the IRS walked that later advice back.

Now, either of the above views could be true, depending on the age of the account holder when they died. The beneficiary of an account holder who had not yet reached their required beginning date (RBD) at the time of their death would not have to take RMDs, while the beneficiary of an account holder who had reached their RBD at the time of their death would have to take RMDs. The required beginning date is April 1 of the year after the year in which an individual reaches the age of 72.

• Ted dies at the age of 70 (prior to his RBD) and non-eligible designated beneficiaries will not have to take anything out until the end of the ten year period, then they will have to empty the account.
• Carol dies at the age 77 (after her RBD) and NEDBs will have to take RMDs each year and will still have to empty the account by the end of the ten year period.
• Bob dies in December after he had reached his 72nd birthday two months earlier. Because he died before April 1 of the year following turning 72, RMDs will not be required of his NEDBs.

If you inherit an IRA or an employee plan and are a non-eligible designated beneficiary, consult a tax professional or, at least, the plan administrator to be sure you are complying with the new rules.

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