Proposed regulations under the SECURE Act: how beneficiaries may be affected | ThompsonMcMullan PC

The Setting Every Community Up for Retirement Enhancement Act of 2019 (the “SECURE Act”) made significant changes to the rules for required minimum distributions related to certain tax-deferred retirement accounts following the death of a plan participant. More importantly, for participants who died after December 31, 2019, the participant’s entire retirement account must generally be distributed within 10 years of the participant’s death. The “stretched payment” based on the beneficiary’s life expectancy is no longer available. However, it is a general general rule, because certain “eligible designated beneficiaries” may still benefit from a payment spread over the beneficiary’s life expectancy. Undesignated beneficiaries (eg, an estate) must still receive the full account distribution within five years of the participant’s death.

While most advisers previously interpreted the SECURE Act’s 10-year payout requirement to mean that distributions could be made at any time during that 10-year period, the IRS released draft regulations on February 24, 2022 which states the opposite.

Under the proposed regulations, the structure of distributions will depend on whether the plan participant dies before or after their required start date (DAR) for those who fall within the 10-year payout requirement. If the participant dies before their DBO, a named beneficiary must receive a full distribution under the 10-year rule, but distributions can occur all in the first year, all in the 10th year, or any combination in between. If the participant dies after their DBI, a named beneficiary must receive a full distribution under the 10-year rule, but must also make annual distributions under the life expectancy rule until the account is fully distributed within the 10-year period.

The proposed rule has added another level of complexity to the rules surrounding distributions from retirement accounts after a member’s death, and it’s important for beneficiaries to speak with their financial and tax advisors to determine how the rules apply. their. Note that comments on the draft rules are not yet final, so there may still be more changes to come.

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