Final SECURE 2.0 & Inherited IRA RMDs

yogibearbull

Final SECURE 2.0 version has been released (260 pages). X/Twitter Jeff Levine
https://public-inspection.federalregister.gov/2024-14542.pdf

Edit/Add, 7/19/24. A longer thread is X/Twitter Jeff Levine2. It focuses on the unexpected vs the vague original SECURE 2.0 (re Roth 401k/403b, beneficiary classes, aggregation rule for partially annuitized IRAs, etc).

One clarification of the 10-Yr Rule for Inherited IRA RMDs is that:

(i) If the RMDs hadn't started, then the beneficiaries empty the IRA within 10 years in any way,

(ii) If the RMDs had started, then beneficiaries must continue RMDs at least the same rate for 9 years, and empty the remainder in the 10th year. There have been waivers for these RMDs for 2021-24, and those years will be counted in the 10 years, but resume RMDs as required in 2025 and empty the remainder in the 10th year.

Edit/Add. The above applies for designated-noneligible beneficiaries, the most common type. But the picture becomes very complicated if all types of beneficiaries are considered.
https://pbs.twimg.com/media/GSzVXu9XgAApoW0?format=jpg&name=900x900

yogibearbull

One important takeaway is that it’s still preferable to roll Roth 401k/403b into Roth IRA.

Levine’s interpretation of an obscure clause is that when beneficiaries are “Designated-Non-Eligible” (a common situation), and death occurred after the RMDs had started, the annual RMD requirement is avoided in Roth IRA (but not when participant held both 401k/403b and Roth 401k/403b); emptying within 10 year is still required.

This complication may be because of the different ways that plans can handle accounting for 401k/403b (distinct vs proportional by contributions).
https://ybbpersonalfinance.proboards.com/post/1559/thread

Crash

And if the heir is a spouse at least 10 years younger than the deceased, there is a particular, more generous draw-down table in the case of a T-IRA. Not sure about 401k or 403b.
https://irahelp.com/forum-post/77387-ira-spouse-beneficiary-withdrawal-rules-different-when-10-year-age-difference/

yogibearbull

@Crash, that RMD amount calculation for younger spouse applies to T-IRAs and 401k/403b. There are several RMD calculators; the sponsor or the plan may provide calculations.:
https://www.aarp.org/retirement/required-minimum-distribution-calculator/
https://www.voya.com/tool/rmd-calculator

msf

Crash said:

And if the heir is a spouse at least 10 years younger than the deceased, there is a particular, more generous draw-down table in the case of a T-IRA. Not sure about 401k or 403b.
https://irahelp.com/forum-post/77387-ira-spouse-beneficiary-withdrawal-rules-different-when-10-year-age-difference/

There are different rules for the living and the dead. The rule regarding RMD calculations when there is a 10+ year difference in spouses' ages applies primarily to RMDs taken by the older spouse when both spouses are alive. No deceased here, just the living.

When it comes to IRAs inherited from deceased spouses, there's a good amount of flexibility but the 10 year age gap rule either doesn't apply (as described in the next paragraph) or is effectively moot (as described after that).

It is frequently better (and certainly simpler) for a younger surviving spouse to assume the inherited IRA as their own. That is, roll it into their own IRA. This pushes the RMD start date back to that of the surviving spouse.

But some surviving spouses need the inherited money now. By keeping money in an inherited IRA, they are allowed to withdraw it without penalty. They do have to take out at least as much as the deceased would have been required to take as RMD (if the deceased had reached RMD start age). But since the objective here is to have access to more money, that RMD won't really matter. Regardless of how it is calculated.

Crash

Good explanation. Thanks, yogi and msf.