Will SECURE act IRA rules affect inherited IRA from 2014?

[Yarnstormer]

My Raymond James advisor just tried to convince me that my daughter's inherited IRA from her Dad's death in 2014 was subject to the new rules. I say they are wrong. Am I right? There are no changes to existing inherited IRAs are there? My head is about to explode. They also tried to change her UTMA to an individual account even tho she is not 21 yet. Also wrong.

 

[ExFlyBoy5]

My Raymond James advisor just tried to convince me that my daughter's inherited IRA from her Dad's death in 2014 was subject to the new rules. I say they are wrong. Am I right? There are no changes to existing inherited IRAs are there? My head is about to explode. They also tried to change her UTMA to an individual account even tho she is not 21 yet. Also wrong.

I think your RJ advisor is incorrect. As I understand, the "new rules" apply for those that died AFTER Jan 1, 2020.

I don't know much about the RJ brokerage, but they strike me much like Edward Jones.

https://www.fidelity.com/learning-center/personal-finance/retirement/secure-act-inherited-iras

Now, for IRAs inherited from original owners that passed away on or after January 1, 2020, the new law requires most beneficiaries to withdraw assets from an inherited IRA or 401(k) plan within 10 years following the death of the account holder.

The exceptions: You can still generally stretch out required minimum distributions (RMDs) your distributions over your lifetime. Also able to stretch distributions are 4 types of eligible designated beneficiaries (EDBs):

-Spouse of original owner
-Minor child (not grandchild) of original owner1
-Less than 10 years younger than original owner
-Disabled/chronically ill (as defined under the applicable sections of the Internal Revenue Code)

In general, if you’re eligible, stretching distributions for those who can, doing so makes sense because it maximizes the value of tax deferral.

 

[njhowie]

My Raymond James advisor just tried to convince me that my daughter's inherited IRA from her Dad's death in 2014 was subject to the new rules. I say they are wrong. Am I right? There are no changes to existing inherited IRAs are there? My head is about to explode. They also tried to change her UTMA to an individual account even tho she is not 21 yet. Also wrong.

UTMA depends on what state - could be 18, could be 21.

https://www.policygenius.com/estate-planning/age-of-majority-by-state/

 

[fancy free]

I don't know much about the RJ brokerage, but they strike me much like Edward Jones.

I agree. We went through the ringer with Raymond James and an inherited IRA; if we hadn't been so grief-stricken at the time, we might have sued them for the stuff they pulled.

Fidelity uses the language "[those] who inherit IRAs or 401(k)s *starting in 2020*" so OP i agree with you. It only makes sense that IRAs already inherited previously are grandfathered in with the old rules.

 

[ProspectiveBum]

My Raymond James advisor just tried to convince me that my daughter's inherited IRA from her Dad's death in 2014 was subject to the new rules. I say they are wrong. Am I right? There are no changes to existing inherited IRAs are there?

I agree with you. My DW has an inherited IRA from before 2020, and we’re following the old rules for RMDs.

 

[gauss]

The inherited IRA RMDs will decrease in 2022, due to new life expectancy tables. I don't think this has anything to do with the SECURE act however.

gauss

 

[jim584672]

I read the IRS issued a pub that interprets the 10 year rule for inherited IRAs differently than what everyone expected. But since pubs are not official most are saying wait for further clarification.

 

[statsman]

The inherited IRA RMDs will decrease in 2022, due to new life expectancy tables. I don't think this has anything to do with the SECURE act however.

For an inherited IRA (non-spouse, non-exception) started prior to 2020, I don't believe any updated life expectancy tables will change the RMD requirement. For non-inherited IRAs, yes.

The RMD "divisor" for the inherited IRA was set at the time of the original owner's death (usually based on the inheritor's birthdate), and that RMD divisor decreases by 1.0 every year afterward.

 

[Yarnstormer]

Thanks everyone. They checked with their retirement division and I was right - not feeling any confidence in that group now. I kept them because if anything happened to me I thought some hand holding might be helpful for my daughter but clearly that was not a great plan!

 

[ExFlyBoy5]

Thanks everyone. They checked with their retirement division and I was right - not feeling any confidence in that group now. I kept them because if anything happened to me I thought some hand holding might be helpful for my daughter but clearly that was not a great plan!

Hopefully you let them know that the advisor gave bad information so it can be corrected.

 

[gauss]

For an inherited IRA (non-spouse, non-exception) started prior to 2020, I don't believe any updated life expectancy tables will change the RMD requirement. For non-inherited IRAs, yes.

The RMD "divisor" for the inherited IRA was set at the time of the original owner's death (usually based on the inheritor's birthdate), and that RMD divisor decreases by 1.0 every year afterward.

statsman,

Thank you for engaging on this. I went back and checked my references but I still think that my interpretation may be correct.

Here is a link the the regulation that implements the new life expectancy tables for RMDs beginning in 2022.

In particular, the example provided near the end of the regulation appears to address deaths prior to 2020.

(B) Example of redetermination. Assume that an employee died at age 80 in 2019 and the employee's designated beneficiary (who was not the employee's spouse) was age 75 in the year of the employee's death. For 2020, the distribution period that would have applied for the beneficiary was 12.7 years (the period applicable for a 76-year-old under the Single Life Table in formerly applicable § 1.401(a)(9)-9), and for 2021, it would have been 11.7 years (the original distribution period, reduced by 1 year). For 2022, if the designated beneficiary is still alive, then the applicable distribution period would be 12.1 years (the 14.1-year life expectancy for a 76-year-old under the Single Life Table in paragraph (b) of this section, reduced by 2 years). However, see section 401(a)(9)(H)(iii) for rules regarding how to apply the required distribution rules to defined contribution plans if the eligible designated beneficiary dies prior to distribution of the employee's entire interest.

Am I misinterpreting this?

Maybe the difference at play here is you referenced an inherited IRA RMD that started prior to 2020, where I am studying the case where a death occurred in 2019 and the first inherited RMD would have been due in 2020 if not for the C-19 delay in RMDS. It could also be a difference that the example appears to apply to inherited 401(k) RMDS, and not specifically inherited IRAs.

This is not an academic exercise for me. We need to start taking RMDs of this type this year, 2021, for the 2019 'passing' and I need to get this straight.

Thanks,
-gauss

 

[statsman]

gauss,

Interesting information. It does appear the section you quoted addresses 401(k) plans and not IRAs. But that does beg the question: Why would they be different? Is there something different about inheriting 401(k) assets vs IRA assets for a non-spouse that will be transferred to an inherited IRA?

Even though the inheritor would be taking the first RMD in 2020, the initial distribution period would be based on the inheritor's age in 2019, the year the original owner of the IRA passed away. Seems like that would be the driving factor for future distribution period calculations, but maybe not?

I will be curious to see what you determine for your specific situation.