IRA Update 2022
By Kasey Franzoni, CISP
The New IRA SECURE Act Proposed Regulations and the Impacts on the 10-Year Rule
In December 2019, Congress passed the “Setting Every Community Up for Retirement Enhancement Act” – more commonly referred to as the “SECURE Act”.
Under this Act, the Life Expectancy Payout was removed as an option for all non-spouse inheriting IRA beneficiaries and replaced by the new 10-Year Rule. Under this rule, beneficiaries had 10 years from the year of death of the original IRA owner to distribute the balance and close out the IRA. There was no outline of any distribution schedules for these beneficiaries to follow, only the direction that they must empty the IRA account by December 31st of the 10th year following the year the IRA owner died.
On February 23, 2022, the Internal Revenue Service released their Proposed Regulations to the SECURE Act and their interpretation of how the 10-Year Rule applied to certain IRA beneficiaries. For IRA owners who were required to take RMDs before they died, their respective 10-Year Rule beneficiaries now must continue that distribution schedule for years 1-9 (of the 10-year period) and deplete the account by December 31st of the 10th year. This is referred to as the “ALAR” or the “At Least as Rapidly Rule.” The annual distributions are calculated based on the beneficiary’s life expectancy.
For those Inherited IRA beneficiaries that were subject to the 10-Year Rule and the ALAR after January 1, 2020, the Proposed Regulations (once enacted) could require such beneficiaries to take both their 2021 and 2022 RMDs by no later than December 31, 2022.
Please note: if you are a non-spouse beneficiary of an IRA owner who died after January 1, 2020 but before age 72, they were not required to take annual distributions. Therefore, the original 10-Year rule will apply to your payout situation.
We’re following this closely and will notify all our impacted Inherited IRA clients when we receive further clarification from the IRS. A more comprehensive explanation of this topic will be included as an insert with your June 30 account statement. If you have any questions or concerns, please don’t hesitate to contact us.