The Further Consolidated Appropriations Act, 2020, signed into law Dec. 20, 2019, includes a division that is known as the SECURE Act,1 which made major changes to the required minimum distribution (RMD) rules applicable to both qualified plans and individual retirement accounts (IRAs). For purposes of this GT Alert, qualified plan participants and IRA owners are sometimes collectively referred to as “participants.”
Under the new rules: (1) the age at which RMDs generally must commence during the lifetime of a participant has been pushed back from 70½ to 72; (2) a beneficiary will not be entitled to stretch the distributions out over his or her life expectancy unless the beneficiary is an eligible designated beneficiary, which is narrowly defined to include only a beneficiary who is: (a) the participant’s surviving spouse; (b) the participant’s minor child; (c) “disabled”; (d) a “chronically ill individual”; or (e) not more than 10 years younger than the participant, or a so-called “see through trust” established for the sole benefit of an individual eligible designated beneficiary; and (3) death benefits payable to “designated beneficiaries” who do not qualify as “eligible designated beneficiaries” must be paid over a period not longer than 10 years.
Because the new rules are effective in 2020, IRA owners (and participants in qualified plans) who have incorporated the so-called “stretch-IRA” approach into their retirement planning should promptly review those plans and the impact that these new rules may have.