IRA IRA Beneficiary Rules and Inherited IRAs 1 — Questions and Answers
Question 1: Under the SECURE Act, what distribution rule generally applies to non-spouse beneficiaries who inherit a traditional IRA from an owner who died after December 31, 2019?
- Stretch IRA over beneficiary's lifetime
- 5-year rule — all funds must be distributed within 5 years
- 10-year rule — the account must be fully distributed by the end of the 10th year following the owner's death (Correct answer)
- 25-year rule for minors
Correct answer: 10-year rule — the account must be fully distributed by the end of the 10th year following the owner's death
The SECURE Act replaced the stretch IRA for most non-spouse beneficiaries with the 10-year rule, requiring full distribution by December 31 of the year containing the 10th anniversary of the owner's death.
Question 2: Which of the following is an 'Eligible Designated Beneficiary' (EDB) who can still use the lifetime stretch IRA rule?
- Adult child of the deceased
- Surviving spouse (Correct answer)
- Trust named as beneficiary
- Estate of the deceased
Correct answer: Surviving spouse
Surviving spouses are EDBs who can still stretch IRA distributions over their own lifetime rather than being subject to the 10-year rule.
Question 3: A surviving spouse who inherits an IRA can choose to treat it as their own IRA. What is the main benefit of this election?
- They immediately avoid all taxes on distributions
- They can delay RMDs until they reach their own RMD age (Correct answer)
- They can contribute unlimited amounts to the inherited IRA
- They can convert it to a Roth IRA tax-free
Correct answer: They can delay RMDs until they reach their own RMD age
By treating the inherited IRA as their own, the surviving spouse delays RMDs until they reach RMD age, potentially providing years of additional tax-deferred growth.
Question 4: What is the 'at least as rapidly' rule in the context of inherited IRAs?
- Distributions must accelerate each year
- Once RMDs have begun, the beneficiary must continue distributions at least as rapidly as the original owner was taking them (Correct answer)
- Beneficiaries must take distributions monthly rather than annually
- The account must be fully distributed within 10 years
Correct answer: Once RMDs have begun, the beneficiary must continue distributions at least as rapidly as the original owner was taking them
If the IRA owner died after their RBD (required beginning date), beneficiaries must take distributions at least as rapidly as the owner would have using the owner's remaining life expectancy.
Question 5: What happens if a non-spouse beneficiary inherits a Roth IRA?
- They must pay taxes on all distributions immediately
- They are subject to the 10-year rule but qualified distributions remain tax-free (Correct answer)
- They can treat it as their own Roth IRA
- They must convert it to a traditional IRA
Correct answer: They are subject to the 10-year rule but qualified distributions remain tax-free
Non-spouse Roth IRA beneficiaries must follow the 10-year rule like traditional IRA beneficiaries, but qualified distributions from the inherited Roth IRA remain income tax-free.
Question 6: By what date must a beneficiary be identified to use the life expectancy method for inherited IRA distributions?
- Date of death
- December 31 of the year of death
- September 30 of the year following the year of death (Correct answer)
- April 15 of the year following the year of death
Correct answer: September 30 of the year following the year of death
The beneficiary determination date is September 30 of the year following the IRA owner's year of death.
IRA IRA Beneficiary Rules and Inherited IRAs 1
Under the SECURE Act, what distribution rule generally applies to non-spouse beneficiaries who inherit a traditional IRA from an owner who died after December 31, 2019?