I receive a significant amount of correspondence from IRA beneficiaries due to the complexity of the regulations. Below is a summary of the current state of the rules as of May 2024.

The regulations changed significantly under the SECURE Act of 2019, which affected beneficiaries who inherited from IRA owners who died in 2020 or later. Designated beneficiaries before 2020 were allowed to stretch their inherited accounts over their life expectancies and had to take annual required minimum distributions (RMDs).

Regulations for designated beneficiaries under the SECURE Act are more complicated. Regulations are based on whether a beneficiary was an eligible designated beneficiary or a non-eligible designated beneficiary. (Note: Again, these rules do not apply to those who inherited IRAs prior to 2020.)

A surviving spouse is considered an EDB; as is a minor child under 21 (but not a grandchild). Chronically ill or disabled individuals, and anyone not more than 10 years younger than the deceased IRA owner also qualify as EDBs. All others are categorized as NEDBs.

The regulations also made a distinction regarding RMDs based on whether the IRA owner died before or after what was defined as a required beginning date. RBD is defined as April 1 of the year the IRA owner would be required to take his or her first RMD.

This gets complicated because the age at which people need to take their first RMD has changed. The year depends on the IRA owner’s birthdate, as follows.

Age 70 1/2: Applies to those born before July 1, 1949.

Age 72: Applies to those born on or after July 1, 1949, and before January 1, 1951.

Age 73: Applies to those born on or after 1/1/1951 and before 1/1/1960.

Age 75: Applies to those born on or after 1/1/1960.

Beneficiaries of Roth IRAs are not required to take RMDs.

NEBDs are required to use the 10-year rule, which starts the year after the IRA owner died. NEBDs are required to withdraw all funds from the IRA by the end of the 10th year.

If the IRA owner died before reaching his RBD, then the beneficiary is not required to withdraw funds from the IRA until the 10th year. If the IRA owner died after reaching his RBD, then the beneficiary is required to take yearly RMDs, using the single life table. However, the IRS has not made a final ruling on this issue. A final ruling is expected by the end of 2024.

In the opinion of IRA expert Ed Slott, the SECURE 2.0 Act of 2022 added confusing new rules for spouses who inherit a traditional IRA from an owner who died after 2023, before the owner’s RBD, or any Roth IRA.

Slott’s interpretation is that the beneficiary must make an election to have RMDs delayed until the deceased owner would have turned 73. If no election is made, RMDs must begin in the year after the deceased owner’s death.

Bottom line: Regulations for beneficiaries of IRAs are complex. Make sure you understand your options.

If the rules are not clear as they apply to your case, consult a knowledgeable financial adviser. IRA custodians are not required to provide beneficiaries advice.

You must understand IRS requirements to avoid penalties and select your most cost-effective withdrawal option. Even if you are allowed to postpone yearly RMDs, it may be more cost-effective to take yearly distributions.

Otherwise, if you wait until the 10th year to withdraw the balance, you could face a large tax bill.

Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.