SECURE Act 2.0 - New Distribution Option for Surviving Spouses.

SECURE 2.0 gives surviving spouses a new distribution option as beneficiaries of IRAs and other inherited retirement accounts. Beginning in 2024, a surviving spouse who is the sole beneficiary of a deceased spouse’s IRA may elect to be treated as the deceased spouse for purposes of the required minimum distribution rules.

Under this election, RMDs from the inherited account would be delayed until the deceased spouse would have reached the starting age for required distributions. Further, once the surviving spouse reaches the point where RMDs will have to taken from the inherited account, the surviving spouse will calculate RMDs using the Uniform Lifetime Table used by account owners, rather than the less favorable Single Life Table applicable to beneficiaries in general.

If the surviving spouse dies before the time RMDs would begin for the deceased spouse, then the surviving spouse’s beneficiaries will be treated as the original beneficiaries of the account, which would allow eligible designated beneficiaries to take distributions over their remaining life expectancy rather than the default 10-year rule that would apply to beneficiaries of a previously inherited account.

This new option will benefit surviving spouses who are older than their deceased spouse, as well as potential eligible designated beneficiaries of the surviving spouse.

Let’s look at a couple of examples:

Example 1. Anne dies in 2024 at age 60. Anne’s husband John, age 65, is the sole beneficiary of Anne’s IRA. John elects to be treated as Anne for purposes of required distribution rules. Under applicable law, Anne could delay RMDs from her IRA until 2039, the year she would have reached age 75. Thus, John could delay taking distributions from the account until he was age 80 in 2039!

Example 2. Same as Example 1, however, after electing to be treated as Anne for RMD purposes with respect to the IRA, John names his disabled daughter Susan as his beneficiary of Anne’s IRA. John dies in 2030. Because John elected to be treated as Anne for RMD purposes, Susan is treated as an eligible designated beneficiary of Anne’s IRA and may take distributions from Anne IRA after John’s death using her own life expectancy to calculate annual RMDs over her remaining lifetime. Had John not made the election and remained merely the beneficiary of Anne’s IRA, Susan would have to liquidate the remaining balance of Anne’s IRA within 10 years of the year of John’s death.

This provision adds to the arsenal of options granted to a surviving spouse under the required minimum distributions rules. The additional option could be of great benefit to a surviving spouse who is older than their deceased spouse, especially if there is a large difference in ages.

Are you dealing with an inherited IRA or other retirement account and don’t know what your options are, or the best option to take? Give me a call, I can help.