SECURE Act: 10-Year Distribution Update

Take-Away: The IRS issued a Revised 2020 Publication 590-B  that clarifies that the beneficiary of an inherited traditional IRA has the option to withhold taking distributions from that IRA until December 31 of the 10^th anniversary of the IRA owner’s death.

Background: When the initial 2020 Publication was issued earlier this year it created a lot of confusion by continuing with an ‘old’ example that suggested the beneficiary had to start taking required minimum distributions in the year following the IRA owner’s death, even though everyone thought that the SECURE Act gave the beneficiary the ability to withhold taking any required minimum distributions until the tenth year after the IRA owner’s death. A month or so later, a spokesperson from the IRS then admitted that the 2020 Publication 590-B contained a mistaken example. Now we have on May 26, 2021 a Revised 2020 Publication 590-B that seems to formally ‘correct’ the mistake with regard to the 10-year distribution rule.

Clarification: The explanation of the 10-year distribution rule has been expanded to indicate that, if applicable, the entire balance of the IRA must be withdrawn by December 31 of the year containing the 10^th anniversary of h owner’s death, and the beneficiary is allowed, but not required, to take a distribution before that date.

More Confusion: The Publication also notes that the 10-year distribution rule applies if: (i) the beneficiary is an eligible designated beneficiary who elects the 10-year rule if the owner died before reaching his/her required beginning date; or (ii) the beneficiary is a designated beneficiary who is not an eligible designated beneficiary, regardless of whether the owner died before reaching his/her required beginning date. This seems to again  cause some confusion. Taken together, the Revised Publication appears to suggest that the SECURE Act’s 10-year distribution rule may not be an option for an eligible designated beneficiary for death on or after the account owner’s required beginning date.

Conclusion: As in the original Publication, the IRS in its Revised 2020 Publication indicated that it will soon issue proposed Regulations with regard to changes made to the required minimum distribution rules under the SECURE Act. Those proposed Regulations cannot come soon enough!