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IRS to Fix Inherited IRA Guidance That Confused Advisors

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What You Need to Know

  • The Secure Act changed the inherited IRA rules for most non-spousal beneficiaries.
  • A recent IRS publication created confusion around whether RMDs are required for those beneficiaries covered by the 10-year rule.
  • An example presented by the IRS seemed to show that distributions needed to be taken every year. That's not the case.

The Setting Every Community Up for Retirement Enhancement (Secure) Act contained a number of changes affecting retirement accounts.

One of the most significant sets of changes are those the act made to the inherited IRA rules for many non-spousal beneficiaries. In particular, the rules require an inherited IRA to be emptied in 10 years.

A recent IRS publication illustrating the 10-year rule caused confusion among advisors over whether annual distributions must be taken over that period. An IRS spokesman told ThinkAdvisor the agency would revise the guidance to reflect that such distributions were not, in fact, required for beneficiaries covered by the 10-year rule.

More about that later, but first, here’s how the Secure Act changed the rules for inherited IRAs.

Death of the Stretch IRA 

For IRAs inherited prior to Jan. 1, 2020, non-spousal beneficiaries had several options for taking distributions from the account. One popular option was taking required minimum distributions (RMDs) from the account based on the life expectancy of the beneficiary, especially if they were younger than the original account owner. 

Taking RMDs over their lifetime allowed the beneficiary to stretch the tax-deferred growth of the account over their life expectancy. This option offered some tremendous opportunities to preserve this asset and even to pass it on to the next generation. 

The Secure Act essentially eliminated the stretch IRA for most non-spousal beneficiaries for IRAs inherited on or after January 1, 2020. IRAs inherited prior to that date are still eligible to continue with RMDs as before. 

Spousal Beneficiaries 

Spousal beneficiaries of an IRA continue to have the option to treat the inherited IRA as their own. This allows clients to take RMDs based on their own age in the case of a traditional IRA. They can also treat an inherited Roth IRA as their own if they wish. 

Eligible Designated Beneficiaries 

The Secure Act created another class of beneficiaries known as eligible designated beneficiaries. A spouse is included in this group, and they can treat the IRA as an inherited IRA instead of as their own account. Clients in this situation will need your advice to decide upon the best option for their situation. 

Other eligible designated beneficiaries include: 

  • A beneficiary who is chronically ill or disabled
  • A beneficiary who is not more than 10 years younger than the account holder
  • The child of the account holder who has not yet reached the age of majority. Once they do reach the age of majority, they are no longer considered to be an eligible designated beneficiary.
  • Certain trusts

 These beneficiaries may choose either the 10-year rule or take RMDs based on the single life expectancy table. 

Other Non-Spousal Beneficiaries 

Non-spousal beneficiaries who do not fall into the eligible designated beneficiary classification must withdraw the entire account balance within 10 years of inheriting the account for IRAs inherited on or after Jan. 1, 2020. 

In the case of a traditional inherited IRA, this means that taxes will be due on the amounts withdrawn. For some clients, this could mean that their beneficiaries will see a high percentage of the account eaten up by taxes. 

Amounts in an inherited Roth IRA are also subject to the 10-year rule, though withdrawals will be tax-free as long as the account owner had satisfied the five-year rule prior to their death. 

Confusion Over the 10-Year Rule 

Recently there has been confusion over the application of the 10-year rule — in particular, whether a beneficiary needs to take a distribution in each of the 10 years, or whether they can withdraw the full amount of the account over any time frame they wish within that 10-year window. 

The confusion arose from a portion of IRS Publication 590-B that discusses distributions for other designated beneficiaries that starts at the end of page 11 and extends onto page 12. There are examples of how the RMD is to be calculated in year one and references RMDs for subsequent years. This flies in the face of what advisors were led to believe when the Secure Act rules were first announced. 

IRA expert Ed Slott wrote about this surprising development April 12 in an InvestmentNews article, cautioning that the 10-year rule may not be what he and other advisors thought. 

But “the the IRS explanation isn’t very clear,” IRA analyst Ian Berger wrote on Slott’s website two days later. “And even if it was clear, the IRS offered the information in an informal publication that should not be relied on.”

On April 19, Jeffrey Levine, chief planning officer of Buckingham Wealth Partners, said in a Twitter thread that he was “100% convinced” there had been a mistake.

Turns out he was right. MarketWatch first confirmed, late last week, that the IRS would revise the publication.

“It’s obvious from the reading of the law that the intent of Congress was to follow the plan of ‘distribute the entire inherited IRA within 10 years, but no other restrictions (e.g., yearly withdrawals) apply,’” says IRA expert Jim Blankenship, a certified financial planner, enrolled agent and the author of ”An IRA Owner’s Manual.

“This isn’t the first time the IRS has misinterpreted congressional intent, but usually it gets resolved pretty quickly. Just look at the PPP loan forgiveness deductibility/non-deductibility debacle from last year as a perfect example.”

Natalie Choate, a trusts and estates attorney in Boston with Nutter McClennen & Fish LLP, had a simpler explanation: The IRS forgot to update the publication for the Secure Act.

The example in question “is copied word for word from prior editions of Publication 590-B, with just the years changed,” she said in the May edition of Slott’s IRA Advisor newsletter.


The rules surrounding inherited IRAs under the Secure Act are complex and at times confusing. Your clients need your expertise in understanding these rules in terms of their estate planning. Clients who are the beneficiaries of inherited IRAs need your advice to help maximize their benefit from the inherited IRA.  

In his newsletter, Slott advises beneficiaries who inherited an IRA in 2020 to wait for more guidance from the IRS.

“Don’t rush to pay an RMD this year,” he says. “Once you’ve taken it out, you can’t put it back in.”


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