SECURE Act rules when you die without designating a beneficiary on your IRA

11/02/2022

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If you have not designated a beneficiary on your IRA, your intended beneficiary will not have the flexibility to spread distributions from an inherited IRA account over 10 years as provided by the SECURE Act. The default beneficiary “my estate” results in a choice between two payout options:
 

OPTION 1: THE FIVE-YEAR RULE

If an account owner dies before the account owner’s required beginning date (RBD) which occurs in the year the owner turns 72, payments must be made under the 5-year rule and the account must be emptied by the end of the 5th year after death.
 

OPTION 2: DISTRIBUTION OVER DECEDENT’S LIFE EXPECTANCY

If an account owner dies after the RBD payment must be made over the deceased IRA owner’s remaining single life expectancy, had he or she survived. Required minimum distributions apply annually in this scenario. However, the payment schedule could be longer than the 10-year option if the individual’s life expectancy exceeds the Secure Act inherited IRA rule.

The IRS has announced that there will be no tax penalty on missed required minimum distributions (RMDs) for inherited IRAs for tax years 2021 and 2022. Final rules for tax reprieve for those who inherited retirement accounts during this time period, will be disclosed next year.

View Notice 2022-53 on Certain Required Minimum Distributions for 2021 and 2022

If you want your retirement accounts to go to specific individuals, complete a beneficiary form. Designating a beneficiary also avoids probate and potential tax issues. If you have questions on how your retirement accounts impact your overall estate plan, our Trust & Estates Group is happy to help.