Navigating Changes to Inherited IRAs Under the Secure Act

The rules surrounding inherited IRAs have changed, and it’s important for beneficiaries to understand how these changes could impact their financial planning. The Secure Act, passed in 2019, eliminated the “stretch IRA” option, which allowed beneficiaries to take distributions over their own life expectancy. Now, beneficiaries must distribute the funds within 10 years of the original owner’s death, with required minimum distributions potentially starting immediately.

For non-spouse beneficiaries who are close in age to the deceased owner, taking RMDs based on their own life expectancy may still be an option. Exceptions also exist for disabled or chronically ill beneficiaries, as well as children under 18 who would be required to take distributions once they reach adulthood. Additionally, if the IRA was left to a trust, estate, or charity, the 10-year rule may not apply.

It’s important for beneficiaries to carefully plan their distributions to avoid penalties, which can be as high as 25% of the missed RMD amount. Consulting with a tax professional can help beneficiaries navigate these new rules and make informed decisions about their inherited IRAs. With proper planning, beneficiaries can maximize the tax benefits of their inherited assets and ensure their financial security for the future.