On December 20, 2019, President Trump signed into law the “Secure Act,” which eliminated the benefits of “Stretch IRAs” for non-spouse beneficiaries of IRAs, 401Ks, Thrift Savings Plans, and other qualified retirement plans.
Today, rather than being able to stretch annual required minimum distributions (RMDs) over their projected lifespans, nonspouse beneficiaries of inherited IRAs will be required to withdraw the entire amount of an inherited IRA within ten years. There are no specific RMD requirements within the ten-year period, but the entire balance must be distributed by the last day of the period.
This is bad news for beneficiaries in their peak earning years, when their marginal tax rates are likely to be at their highest. Limiting the period in which a beneficiary must take his or her distributions from an inherited plan means potentially magnifying the tax burden on those distributions.
On the plus side, the Secure Act increased the age at which an IRA owner/beneficiary must begin taking RMDs from the previous age 70-1/2 to age 72. Folks who turn 72 years old in 2022 will not need to make their first withdrawal until April 1, 2023. They’ll then have to take another RMD by December 31, and by every December 31 thereafter.
UPDATE: The “Cares Act” of 2020, enacted to ease the financial burdens of the Chinese coronavirus pandemic, allowed all retirees who would otherwise be required to take an RMD for 2020, plus all beneficiaries of inherited IRAs, to skip the RMD just for that year. The one-time RMD exemption has not yet been extended for tax year 2021.
[Updated: December 15, 2021]