Abstract
Individual beneficiaries of tax-favored retirement plans have long enjoyed substantial tax deferral by spreading required minimum distributions (RMDs) over their lifetimes or life expectancies. Often referred to as “stretch” distributions, these extended RMDs attracted the attention of reformers who questioned whether the deferrals served the needs of retirees, or were merely estate planning tools. The result of that concern was the enactment of the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) of 2019 that significantly changed the treatment of retirement plan distributions to beneficiaries.
The SECURE Act primarily targets non-annuity RMDs made to designated beneficiaries from tax-favored retirement plans that are defined contribution plans (but including IRAs). The SECURE Act eliminates life-expectancy RMDs for many if not most of these beneficiaries and instead requires distribution of the entire amount of the retirement benefit before the end of the calendar year containing the tenth anniversary of the participant’s death (the ten-year rule).
The SECURE Act, however, preserves life-expectancy RMDs for “eligible designated beneficiaries” (EDBs). EDBs include only (1) the surviving spouse of the participant, (2) a minor child of the participant, (3) a disabled individual, (4) a chronically ill individual, or (5) an individual who is not more than ten years younger than the participant. The determination of whether a designated beneficiary is an EDB is made as of the date of death of the participant.
The SECURE Act also helpfully replaces the old five-year distribution rule with the ten-year rule, even for designated beneficiaries who are not EDBs (i.e., for those who are “ineligible designated beneficiaries” (IDBs)). The ten-year rule also applies now to beneficiaries who succeed to plan benefits upon the death of an EDB. Unfortunately, though, beneficiaries who succeed to plan benefits upon the death of an IDB must still distribute all the remaining benefit within the same period that was applicable to the IDB.
Beneficiaries that are so-called “see-through” trusts have long been afforded special RMD treatment. Now, however, the possibility of making life-expectancy distributions to such a trust may be lost if any of the trust beneficiaries are IDBs. The SECURE Act partially addresses this problem by providing for “applicable multi-beneficiary trusts” that can allow a trust for a disabled or chronically ill beneficiary to still take RMDs over the beneficiary’s life expectancy.
The SECURE Act also applies to commercial annuities purchased by tax-favored retirement plans that are defined contribution plans (including IRAs). These plans may now purchase lifetime and period certain annuities only for EDBs. Such annuities purchased for IDBs would normally conflict with the required application of the ten-year distribution rule.
Fortunately, the SECURE Act does not apply to traditional defined benefit plans. Stretch annuities are still available under such plans even for IDBs. These annuities may provide unreduced payments for a period certain and may allow significant increases over time in the amount of an annuity payment. Joint and survivor annuity payments may still be limited in amount for beneficiaries more than ten years younger than the deceased participant. Nevertheless, the payments may be as much as 52% of the payments to the participant for even the youngest of beneficiaries (with a higher percentage for older beneficiaries).
I. Introduction
Individual beneficiaries of tax-favored retirement plans have long enjoyed substantial tax deferral by spreading required minimum distributions (RMDs) over their lifetimes or life expectancies. These distributions were particularly beneficial when the beneficiary was very young, with a correspondingly long life expectancy. Often referred to as “stretch” distributions, they attracted the attention of reformers in recent years who questioned whether the deferrals served the needs of retirees, or were merely estate planning tools. The result of that concern was the enactment of the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) that significantly changed the treatment of retirement plan distributions to beneficiaries.
This Article first describes the tax treatment of distributions to beneficiaries of tax-favored plans before the enactment of the SECURE Act. It then explains the changes wrought by the SECURE Act and evaluates the extent and significance of those changes. The Article uses the term “tax-favored plans” to refer to qualified retirement plans, section 403(b) plans (TSAs), section 457 government plans, traditional IRAs, and Roth IRAs. The term “participant” includes both an employee participating in an employer retirement plan and an owner of a traditional IRA or Roth IRA.
The changes made by the SECURE Act apply only to defined contribution plans. Under the SECURE Act, defined contribution plans include all tax-favored plans except traditional defined benefit plans. For this purpose, “traditional defined benefit plans” mean defined benefit plans that include a section 401(a) qualified trust as part of the plan or that qualify as section 403(a) annuities or section 457 government plans. “Defined benefit plans” are generally plans that do not provide individual accounts for participants (or do not properly account for them).
Congress has eliminated most minimum distribution requirements for the year 2020. The elimination does not, however, affect beneficiary distributions that are subject to the SECURE Act. The SECURE Act applies to beneficiaries of participants dying during or after 2020, and the earliest any of these beneficiaries can be required to take minimum distributions is the year 2021.
After the death of a participant, the amount and timing of RMDs paid to beneficiaries have generally depended on the existence or nonexistence of so-called “designated beneficiaries.” A designated beneficiary is, in brief, a beneficiary designated in the plan or, if the plan allows, designated by the participant. The SECURE Act did not change the nature and definition of designated beneficiaries, and the existence or nonexistence of designated beneficiaries continues to be very important after enactment of the SECURE Act.
II. Non-Annuity Distributions to Beneficiaries
Tax-favored plans that are defined contribution plans under the SECURE Act normally make RMDs that are not annuity distributions (i.e., that are “non-annuity distributions”). Nonetheless, such plans can, and sometimes do, purchase commercial annuities that instead make annuity distributions to beneficiaries. Section III below discusses these annuity distributions.
A. Non-Annuity Distributions to Beneficiaries Before the SECURE Act
Before enactment of the SECURE Act, minimum distributions requirements for beneficiaries differed depending on whether a participant died before or on or after his or her “required beginning date” (RBD) for distributions. The RBD before enactment of the SECURE Act was normally April 1 of the year following the calendar year the participant reached age 70½. If the participant retired after age 70½, however, the participant’s RBD was generally April 1 of the year following the calendar year of retirement (but only for a qualified retirement plan, a section 403(b) plan, or a section 457 government plan).
Nevertheless, a qualified plan or a section 457 government plan could have by its terms eliminated the retirement alternative altogether (reverting to age 70½ in all events). In addition, the retirement alternative did not apply if the participant was directly or indirectly a 5-percent owner of the employer.
1. Death of the Participant on or After the Required Beginning Date
If a participant died on or after his or her RBD, plan distributions to beneficiaries were generally treated as a continuation of RMDs that were being made to the participant each year before his or her death. Those annual distributions were generally a specified fraction of the “adjusted account balance” of the plan for the prior year. For a qualified plan the adjusted account balance was the account balance on the plan’s regular valuation date (often not the last day of the year), adjusted for most subsequent transactions occurring within the valuation year. The adjusted account balance for an IRA or a section 403(b) plan generally equaled the account balance on the last day of the preceding year.
a. Payment of Deceased Participant’s Unpaid Minimum Distribution. For a participant who died on or after his or her RBD, a tax-favored plan had to pay the participant’s beneficiaries any previously unpaid portion of the minimum non-annuity distribution required for the year of death. Each year thereafter, the plan had to distribute a minimum amount equal to the adjusted account balance for the prior year divided by the applicable distribution period. The applicable distribution period was different depending on whether the participant had a designated beneficiary and, if so, whether the participant’s spouse was the sole designated beneficiary.
b. No Designated Beneficiary. If a participant had one or more nondesignated beneficiaries (NDBs), the “applicable distribution period” depended on the participant’s age on his or her birthday in the calendar year of his or her death. For the first full calendar year following the participant’s death, the applicable distribution period was the number of years found by reference to such age in the Single Life Table in the regulations, but reduced by one year. For each subsequent calendar year, the applicable distribution period was one year less than in the immediately preceding calendar year.
c. Spouse as Sole Designated Beneficiary. If the participant’s surviving spouse was the sole designated beneficiary, the applicable distribution period would have depended on the spouse’s life expectancy. The applicable distribution period for each full calendar year after the participant’s death was the longer of (1) the spouse’s life expectancy in that year or (2) the period determined for a participant without a designated beneficiary (as described immediately above). For a particular calendar year, a tax-favored plan could find the spouse’s life expectancy in the Single Life Table for the age the spouse attained in that year. In other words, for each post-death calendar year, the tax-favored plan had to determine the spouse’s life expectancy anew based on the age the spouse attained in that year.
d. Other Designated Beneficiaries. If a participant had only designated beneficiaries, at least one of whom was not his or her spouse, the applicable distribution period would have depended on the age of the oldest designated beneficiary (whether or not the spouse). That is, the applicable distribution period for each full calendar year after the participant’s death was the longer of (1) the period determined for a participant without a designated beneficiary (as described above) or (2) an alternative period based on the age of the oldest designated beneficiary.
For the first full calendar year following the participant’s death, the tax-favored plan would have found the alternative period in the Single Life Table for the age attained by the oldest beneficiary in that year. For each subsequent calendar year, the alternative period was one year less than in the immediately preceding calendar year. Thus, if a plan had only one beneficiary and he or she was very young, the distributions could be “stretched” over the long life expectancy of the beneficiary.
2. Death of the Participant Before the Required Beginning Date
If the participant died before his or her RBD, the tax-favored plan had to meet minimum distribution requirements under one of two methods. Those two methods also applied to minimum distributions from Roth IRAs (whether or not the participant died before the RBD). Under one method, the tax-favored plan had to distribute the entire amount of the benefits before the end of the fifth full calendar year following the participant’s death (the “five-year rule”). Under the other method, it had to distribute a minimum amount each calendar year based on the life expectancy of the oldest designated beneficiary (the “life-expectancy rule”). Again, with careful planning, the life-expectancy rule allowed a stretch distribution over the long life expectancy of a young individual beneficiary.
B. Non-Annuity Distributions to Beneficiaries After the SECURE Act
The SECURE Act substantially curtailed non-annuity distributions over the life expectancies of many beneficiaries.
1. Different Distribution Requirements for Different Classes of Beneficiaries
For participants dying during or after 2020, treatment of RMDs to beneficiaries now differ depending on the beneficiaries’ classifications. For this purpose, a beneficiary of a tax-favored plan may be classified as an eligible designated beneficiary (EDB), an ineligible designated beneficiary (IDB), or a nondesignated beneficiary (NDB). EDBs receive the most favorable treatment under the SECURE Act.
2. Definition of Eligible Designated Beneficiary
An EDB is a designated beneficiary who is, as of the date of death of the participant:
- the surviving spouse of the participant,
- a minor child of the participant,
- a disabled individual,
- a chronically ill individual, or
- an individual who is not more than ten years younger than the participant.
a. Minor Child. Under item 2 above, a child will cease to be an EDB upon his or her death. Otherwise, a child will cease to be an EDB upon the later of (1) reaching majority, (2) completing a specified course of education or reaching age 26 if earlier, or (3) recovering from a disability that existed when the child reached majority. Any benefit remaining undistributed when the child ceases to be an EDB must be distributed by the end of the tenth full calendar year following such cessation. Nevertheless, payments to a minor child must be treated as payments to the surviving spouse, if the remaining benefit must be paid to the surviving spouse upon the cessation of payments to the child. In such case, the surviving spouse will be the EDB.
b. Disabled Individual. A taxpayer is disabled under item 3 above if he or she cannot do substantial work because of a physical or mental medical condition that will last for a long and indefinite period or from which the taxpayer will probably die.
c. Chronically Ill Individual. A chronically ill individual (item 4 above) is someone certified within the preceding 12-month period (by a physician, registered nurse, or licensed social worker) as suffering from certain mental or physical impairments. For physical impairments, the professional must certify that the individual is unable to perform two “activities of daily living” for 90 days without “substantial assistance.” At the time of the certification, the required 90-day period may be an already elapsed period, a future period, or a continuous combination of past and future periods.
Activities of daily living include eating, toileting, transferring, bathing, dressing, and continence. Substantial assistance with such activities includes either hands-on physical assistance or “standby assistance.” Standby assistance is assistance provided by someone within arm’s reach who can prevent injury during performance of the activity (e.g., by physically catching a falling individual or dislodging food from a choking individual’s throat).
Alternatively, the licensed professional may certify that the individual requires “substantial supervision” to protect against threats to health and safety due to the individual’s “severe cognitive impairment.” Severe cognitive impairment means loss of intellectual capacity due to Alzheimer’s disease or similar types of irreversible dementia, as determined from clinical evidence and standard tests measuring impairments of memory, orientation, and reasoning. Substantial supervision includes continual physical or verbal supervision necessary to protect the health and safety of the individual.
In any such case though, the certification by the professional must also state that the individual’s disability is indefinite and reasonably expected to be lengthy in nature.
d. EDB Status Determined as of the Date of the Death of Participant. The determination of whether a designated beneficiary is an EDB is determined as of the date of death of the participant. This provision of the SECURE Act does not change the way designated beneficiaries are determined, however. The definition of designated beneficiary has not changed. Rather, the SECURE Act merely provides that the condition that qualifies a designated beneficiary as “eligible” must exist on the date of death of the participant. Thus, a later disability or chronic illness will not retroactively qualify a designated beneficiary as an EDB.
3. Distributions to Ineligible Designated Beneficiaries
An IDB is a designated beneficiary who is not an EDB. Under the new rules, an IDB is not entitled to take distributions under the life-expectancy rule. Instead, the IDB must take distributions under the ten-year rule. The ten-year rule provides that a plan must distribute the entire amount of a participant’s benefits by the end of the calendar year containing the tenth anniversary of the participant’s death.
4. Distributions to Eligible Designated Beneficiaries
A beneficiary must now be an EDB to potentially enjoy the most generous tax deferral provisions under the SECURE Act.
a. Distributions When the Only Beneficiaries of a Plan Are EDBs. A tax-favored plan that has only EDBs may potentially make distributions under either the ten-year rule or the life-expectancy rule. Under the life-expectancy rule, the plan may make distributions to the EDBs over the life expectancy of the oldest EDB. Under the ten-year rule, the plan must distribute the entire amount of a participant’s benefits by the end of the calendar year containing the tenth anniversary of the participant’s death. These distribution options for the EDBs are identical to the distribution options that would have been available to them before enactment of the SECURE Act except that the five-year rule has become a ten-year rule.
b. Distributions When a Plan Has Both EDBs and IDBs. If a plan has both EDBs and IDBs, the plan may generally make distributions only under the ten-year rule. That is, a plan without separate accounts must make all distributions under the same minimum distribution method, (i.e., under either the ten-year rule or the life-expectancy rule). Logically then, a plan with both EDBs and IDBs may make distributions only under the ten-year rule. Distributions under the life-expectancy rule in such a case would allow IDBs to benefit from a life-expectancy distribution, to which they are not otherwise entitled under the provisions of the SECURE Act.
Stated another way, if all the beneficiaries of a tax-favored plan are designated beneficiaries and one of them is an IDB, the participant will be treated as having no EDB. This is analogous to the statement in the regulations that if an NDB is one of the beneficiaries of a tax-favored plan, the participant will be treated as having no designated beneficiary.
If a tax-favored plan is divided into separate accounts before the end of the year following the death of the participant, however, the life-expectancy rule may be used for distributions from any separate account benefiting only EDBs. The regulations have long allowed the timely creation of separate accounts to allow distributions under the life-expectancy rule or to allow a beneficiary to use his or her own life expectancy under the rule.
c. Distributions to EDBs under the Ten-Year Rule. Under the ten-year rule, a tax-favored plan must distribute the entire amount of a participant’s benefits by the end of the calendar year containing the tenth anniversary of the participant’s death. As noted above, the ten-year rule applies to all distributions to an EDB from a plan with only designated beneficiaries, one or more of which is an IDB, unless the beneficiaries have timely created separate accounts in the plan. The ten-year rule also applies to distributions from a plan with only EDBs if:
- the governing instrument for the tax-favored plan requires distribution under the ten-year rule, or
- the governing instrument allows the participant or EDB to choose either the ten-year rule or the life-expectancy rule, and the participant or EDB elects the ten-year rule.
If the ten-year rule applies, an EDB may not roll over any funds remaining in the tax-favored plan in the tenth year, since the total amount of those funds is an RMD ineligible for rollover. Consequently, a surviving spouse subject to the ten-year rule who wishes to roll over funds to his or her own IRA (with its own different RMD rules) should generally roll over the funds before the tenth year, when distributions are not “required.” The only exception applies if the surviving spouse is the sole beneficiary of the participant’s IRA or Roth IRA. In that case, the spouse may become the owner of the IRA or Roth IRA in the tenth year by simply declining to take the minimum distribution.
d. Distributions to EDBs under the Life-Expectancy Rule. The life-expectancy rule generally applies to distributions from a tax-favored plan to an EDB if the ten-year rule does not apply. More specifically, the rule applies to distributions to an EDB if:
- the governing instrument for a tax-favored plan does not specify the minimum distribution rule and does not provide an election,
- the governing instrument requires minimum distributions to an EDB under the life-expectancy rule, or
- the governing instrument allows the participant or EDB to choose either the ten-year rule or the life-expectancy rule, and the participant or EDB elects the life-expectancy rule.
The life-expectancy rule also applies if (a) the participant and EDB fail to make an irrevocable election under item (3) above and (b) the governing instrument does not then require use of the ten-year rule. If the life-expectancy rule applies, a tax-favored plan must generally begin making distributions by the end of the first full calendar year after the participant’s death. Nevertheless, if the surviving spouse is the sole designated beneficiary, it may instead begin making distributions as late as the end of the calendar year the participant would have reached age 72.
A participant or EDB must generally make the life-expectancy election under item 3 above before the end of the first full calendar year following the participant’s death. If the sole designated beneficiary is the participant’s surviving spouse, however, the spouse may instead make the life-expectancy election by the end of the calendar year the participant would have reached age 72. In no event, though, may the spouse make the election later than the end of the year containing the tenth anniversary of the participant’s death. Unfortunately, a surviving spouse not aware of this election deadline may be trapped into the ten-year rule if the tax-favored plan requires use of that rule in the absence of an election.
Example 1. Assume that a participant dies in 2021 at age 51, and the participant’s surviving spouse is the sole beneficiary of participant’s profit-sharing plan. The plan allows the surviving spouse to elect either the ten-year rule or the life-expectancy rule (but the plan makes no provision for the spouse’s failure to make an election). Under these facts, the spouse’s election will be effective only if irrevocably made before December 31, 2031 (the earlier of the year the participant would have reached age 72 or the year containing the tenth anniversary of the participant’s death). If the spouse fails to make a timely irrevocable election, the life-expectancy rule applies (in the absence of a plan provision requiring default use of the ten-year rule).
When the life-expectancy rule applies, failure to make timely required distributions will generally trigger the 50% penalty tax. That is, the tax law does not imply an election of the ten-year rule merely because the tax-favored plan fails to make timely life-expectancy payments. Nevertheless, the Service will not apply the penalty if the tax-favored plan makes a distribution of its entire balance to a sole designated beneficiary (whether or not the surviving spouse) by the end of the tenth full calendar year following the participant’s death.
Each year, under the life-expectancy rule, a tax-favored plan must distribute an amount equal to the participant’s adjusted account balance divided by the applicable distribution period. Nevertheless, the applicable distribution period may differ depending on whether the surviving spouse is the sole designated beneficiary (as more fully explained below).
e. The Life Expectancy of the Oldest EDB. If a tax-favored plan has more than one EDB (and no IDBs or NDBs), the plan may take into account only the oldest EDB to determine the distribution period under the life-expectancy rule.
Example 2. Assume that a participant names his three children as equal beneficiaries of his IRA, but only if one or more of the children survives him. If none of the children survives him, the participant names his two brothers as the alternative beneficiaries. Assume that one of the participant’s children predeceases him and that the two surviving children, ages 30 and 45, are disabled EDBs as of the death of the participant. The participant’s brothers are then ages 65 and 70. Assume, further, that neither of the surviving children receives or disclaims any of his or her benefits before September 30 of the calendar year following the participant’s death.
Then, distributions under the life-expectancy method may be made to the surviving disabled children over a period no longer than the life expectancy of the 45-year old child (the older EDB). The participant’s brothers take nothing and thus are not considered to be beneficiaries for this purpose. On the other hand, if none of the participant’s children should survive him, the brothers, if they were EDBs, would generally be entitled to distributions over a period no longer than the life expectancy of the older brother, age 70.
Note though that a beneficiary will not be a designated beneficiary for this purpose if, in timely fashion, he or she receives all his or her benefits or disclaims his or her interest.
Example 3. Assume the same facts as in Example 2, except that the child age 45 properly disclaimed his interest before September 30 of the calendar year following the participant’s death. Under these facts, distributions under the life-expectancy method may be made to the only remaining EDB, the disabled child age 30, over a period no longer than that child’s life expectancy.
Nevertheless, a named beneficiary who dies before the September 30 date without receiving or disclaiming his or her interest (which then passes to a successor beneficiary) will continue to qualify as a designated beneficiary who must be taken into account in determining the oldest designated beneficiary.
Example 4. Assume that a participant dies on December 15, 2021, and the participant’s IRA names her surviving spouse D, daughter A (age 40), and daughter B (age 35) as equal beneficiaries of the participant’s IRA. Both daughter A and daughter B are disabled EDBs at the time of the participant’s death. On July 10, 2022, the surviving spouse executes a qualified disclaimer of his entire interest in the IRA. Daughter A dies August 16, 2022, and her interest passes to a successor beneficiary. Under these facts, daughter A and daughter B will be the remaining designated beneficiaries as of September 30, 2022. Before the SECURE Act, minimum distributions had to be made to daughter B based on the life expectancy of daughter A, the older EDB, despite daughter A’s earlier death. The SECURE Act may, however, require distribution of the entire IRA benefit under the successor ten-year rule.
5. When a Spouse Is the Sole Beneficiary
A surviving spouse who is the sole beneficiary of a tax-favored plan is an EDB who generally has a choice of the ten-year rule or the life-expectancy rule for RMDs. The considerations governing this choice after the SECURE Act are the same as before the SECURE Act (except that the five-year rule has been supplanted by the ten-year rule). If the spouse is more interested in tax deferral than in current personal use of funds, he or she will want to choose the rule that delays the distribution of funds over the longer period. The degree of difficulty of that choice depends, strangely enough, on whether the participant reaches or would have reached age 62 in the year of the participant’s death.
a. Death in Calendar Year before Year Attaining Age 62. A surviving spouse seeking deferral will almost always find it advantageous to choose the life-expectancy rule if the participant did not reach, and would not have reached, age 62 in the calendar year of the participant’s death. In that case, annual distributions need not even begin under the life-expectancy rule until the last day of the year the participant would have reached age 72. At the very earliest, that day would be the last day of the eleventh full calendar year after the participant’s death. By contrast, under the ten-year rule, the tax-favored plan must distribute all its funds to the spouse on or before the last day of the tenth full calendar year after the participant’s death.
Example 5. Assume that a participant dies on December 15, 2021, on his 61st birthday. Had he lived, the participant would have reached age 72 on December 15, 2032. The participant’s surviving spouse is the sole beneficiary of the inherited IRA and may choose distributions under either the ten-year rule or the life-expectancy rule. Thus, if the surviving spouse chooses the life-expectancy rule, the inherited IRA must begin distributions by the end of the year 2032 over the life of the spouse. By contrast, under the ten-year rule, the inherited IRA must distribute all its funds by the end of the year 2031.
b. Death in Calendar Year Attaining Age 62 or Subsequent Years. If a participant reached or would have reached age 62 during or before the calendar year of his or her death, the advantage of the life-expectancy rule may not be quite so clear-cut.
Under the life-expectancy rule, annual distributions to the surviving spouse must begin by the end of the first full calendar year following the participant’s death (or the year the participant would have reached age 72, if later). Under the ten-year rule, however, the surviving spouse may delay the first distribution until the end of the tenth full calendar year following the participant’s death. Thus, by choosing the ten-year rule, the spouse may be able to delay the first distribution for up to nine additional years.
On the other hand, the ten-year rule requires the distribution of all funds in the tax-favored plan by the end of the tenth full calendar year following the participant’s death. In contrast, the life-expectancy rule allows the spouse to spread the distributions over a normally longer period of years at least equivalent to the spouse’s life expectancy.
Example 6. Assume that a participant dies on December 15, 2021, on her 67th birthday. Had she lived, the participant would have reached age 72 on December 15, 2026. The participant’s surviving spouse is the sole beneficiary of the participant’s qualified plan and under the terms of the plan may choose distributions under either the ten-year rule or the life-expectancy rule. Thus, if the surviving spouse chooses the life-expectancy rule, the IRA must begin distributions by the end of the year 2026 over the life expectancy of the spouse. By contrast, under the ten-year rule, the plan may wait until the end of the year 2031 to make a distribution (delaying distributions for five more years) but then must distribute all its funds.
Thus, the ten-year rule becomes relatively more favorable the closer the participant is to age 72 in the year of his or her death. In many cases, the choice of the rule providing the more desirable tax deferral will be intuitively obvious. In other cases, the spouse may have to compare projections of respective tax deferrals under the two rules. The projections should take into account all relevant factors, including the respective ages of the participant and spouse, the anticipated (and possibly differing) tax brackets for the spouse over future years, and the time value of money.
c. Distributions Computed by Annually Redetermining Life Expectancy. If the surviving spouse is the sole designated beneficiary (i.e., the only EDB) and is using the life-expectancy method, the spouse is entitled to a special method for computing the distribution period. The applicable distribution period is the spouse’s life expectancy in each distribution year. Thus, for each distribution year after the participant’s death, the tax-favored plan must determine the spouse’s life expectancy anew based on the age the spouse attained in that year. The plan may find the spouse’s life expectancy in the Single Life Table in the regulations. Example 7. Assume that a participant dies in the year 2021 at age 76 and the sole designated beneficiary is the participant’s surviving spouse who reaches age 74 that year. Assume that the tax-favored plan does not provide an annuity and had an adjusted account balance of $400,000 for the year 2021. Assume further that the surviving spouse elects the life-expectancy rule, with payments to begin in 2022.
Then, for the year 2022,the tax-favored plan must make a minimum distribution to the spouse of $29,851. The spouse computes this amount by dividing the adjusted account balance of $400,000 by 13.4 years (the number of years specified in the Single Life Table for the spouse’s age of 75 in the year after the participant’s death).
For the following year 2023,assume that the prior year adjusted account balance is $390,000. Then, the tax-favored plan must make a minimum distribution to the spouse of $30,709. The spouse computes this amount by dividing the prior year adjusted account balance of $390,000 by 12.7 years (the years specified in the Single Life Table for the one-year older spouse who is now age 76).
For the following year 2024,assume that the prior year adjusted account balance is $380,000. Then, the tax-favored plan must make a minimum distribution to the spouse of $31,405. The spouse computes this amount by dividing the prior year adjusted account balance of $380,000 by 12.1 years (the years specified in the Single Life Table for the one-year older spouse who is now age 77).
d. The Surviving Spouse’s IRA Ownership Option. An additional factor comes into play if the tax-favored plan is an IRA. A surviving spouse may elect to become the owner of the participant’s IRA if the spouse (1) is the sole beneficiary and (2) has an unlimited right to withdraw funds. After the election, the minimum distribution requirements will apply to the spouse as if he or she established the IRA or Roth IRA. For example, the spouse could then defer RMDs from a traditional IRA until he or she attains age 72 and could then take advantage of the favorable distribution periods provided by the Uniform Lifetime Table.
Nevertheless, before deciding to take ownership of a traditional IRA, a surviving spouse who may elect either the ten-year distribution or the life-expectancy distribution should consider choosing the distribution method that defers the first year minimum distribution for the longest period. Not only will the electing spouse then avoid RMDs for that period, the spouse may alternatively take distributions free of the ten percent penalty on premature distributions if the financial need should arise.
Then, in the year the first minimum distribution would be due, the spouse may instead elect ownership of the traditional IRA. By electing ownership, the spouse avoids RMDs under the ten-year rule or life-expectancy rule for the year of the election and for subsequent years. Instead, the spouse may take advantage of the favorable distribution periods for a spouse under the Uniform Lifetime Table and may even be able to further delay the initial RMD if the spouse is then younger than age 72.
By electing to become the owner of a Roth IRA, a surviving spouse may completely avoid minimum distributions during his or her lifetime. Of course, distributions to the spouse from a Roth IRA are normally not taxable anyway, provided certain conditions are met. Nevertheless, by making the ownership election and not taking any lifetime distributions, the spouse may increase the amount of the tax-free accumulation of earnings that the Roth IRA may ultimately distribute tax-free to beneficiaries.
Unfortunately, a surviving spouse cannot elect ownership of a participant’s interest in a tax-favored employer plan. Similarly, a surviving spouse may simply not qualify to elect ownership of the participant’s IRA because he or she is not the sole beneficiary or does not have an unlimited right to withdraw funds. If so, the spouse may still become the owner of all or part of his or her interest in the funds tax-free to the extent he or she can obtain a distribution of the funds. The spouse may simply roll over the distributed funds into his or her own IRA. Thereafter, the spouse will be able to take advantage of all the usual benefits of ownership.
A surviving spouse taking ownership by rollover may even be able to use a modified version of the strategy described above of choosing the most favorable of the ten-year rule or the life-expectancy rule for the participant’s IRA and then rolling over the funds to the spouse’s own IRA before the year of the first scheduled minimum distribution. The spouse must take care though that the distribution rolled over is an eligible rollover distribution (e.g., is not the ineligible RMD it would be if rolled over in the year of the first scheduled minimum distribution).
e. Spouse Dies Before Minimum Distributions Required. A special rule may apply to minimum distributions to beneficiaries after the death of a participant’s surviving spouse. This special rule applies if the surviving spouse is the sole designated beneficiary and dies before minimum distributions are required. In that case, the tax law applies the ten-year rule and the life-expectancy rule to the spouse’s designated beneficiaries with the date of death of the spouse substituted for the date of the participant’s death.
Note that the special rule applies even though the tax-favored plan made non-annuity distributions to the surviving spouse before any minimum distributions were actually required. In no event, however, will the rule apply if the plan made annuity payments to the surviving spouse before his or her death.
Example 8. Assume that a participant dies on December 15, 2021, on his 65th birthday. Had he lived, the participant would have reached age 72 on December 15, 2028. The participant’s surviving spouse is the sole beneficiary of the participant’s IRA and, under the terms of the IRA, may choose distributions under either the ten-year rule or the life-expectancy rule. Thus, if the surviving spouse chooses the life-expectancy rule, the IRA must begin distributions over the life of the spouse by the end of the year 2028, the year the participant would have reached age 72. By contrast, under the ten-year rule, the IRA must distribute all its funds by the end of the year 2031.
Assume that the surviving spouse dies in 2025, well before any distributions were required under either the life-expectancy rule or the ten-year rule. If the surviving spouse had the foresight to name her disabled son (an EDB) as the succeeding beneficiary and if the IRA so provides, the spouse’s son may choose between the ten-year rule and the life-expectancy rule, determined as if the surviving spouse were the owner of the IRA. If instead the surviving spouse had remarried and, before she died, named her new husband as her beneficiary, the new husband may not be treated as her surviving spouse but must instead receive minimum distributions determined and paid as if he were merely a nonspousal beneficiary.
Note that the special rule is available both before and after the SECURE Act for the beneficiary of a participant who dies before his RBD. The primary difference after the SECURE Act is that the special rule is available regardless of when the participant dies. In addition, a designated beneficiary of the surviving spouse is subject to the new classification and treatment rules. Unfortunately though, the spouse will often not have a designated beneficiary because the spouse did not provide for one. In that case, the five-year rule, applicable to NDBs, will apply to distributions after the spouse’s death.
f. Qualifying the Surviving Spouse as the Sole Beneficiary. To qualify as the sole beneficiary for minimum distribution purposes, a surviving spouse must be at least one of the beneficiaries at the participant’s death. The spouse must also be the only beneficiary on September 30 of the first full calendar year following the participant’s death. Thus, the surviving spouse may become the sole beneficiary by the September 30 date if other beneficiaries are eliminated by disclaimer or by distribution of their interests (but not by death). In addition, if separate accounts are timely established, the spouse may become the sole beneficiary of one of the separate accounts.
Example 9. Assume that a participant dies on December 15, 2021. The participant’s spouse, Daughter A, and Daughter B are named as the beneficiaries of the participant’s IRA, in equal shares. On June 15, 2022, Daughter A executes a qualified disclaimer of her entire interest in the IRA. On August 1, 2022, Daughter B receives distribution of her entire interest. Thus, the participant’s surviving spouse is the sole designated beneficiary since she was a beneficiary as of the decedent’s death and was the only beneficiary as of September 30, 2022.
6. When the Spouse Is Not the Sole Beneficiary
A participant’s spouse may not be the participant’s beneficiary (or may not be the sole beneficiary) under a tax-favored plan. If not, an EDB may still be able to choose between the ten-year rule and the life-expectancy rule for minimum distributions. If the beneficiary is more interested in tax deferral than in current personal use of funds, he or she will want to choose the rule that delays the distribution of funds longer. In many cases, however, the choice will not be an obvious one.
a. The Choice of Distribution Method. Under the life-expectancy rule, annual distributions must begin by the end of the first full calendar year following a participant’s death. Under the ten-year rule, however, a tax-favored plan may delay the first distribution until the end of the tenth full calendar year following the participant’s death. Thus, by choosing the ten-year rule, a beneficiary can delay the first non-annuity distribution for nine additional years.
On the other hand, the ten-year rule requires the distribution of all funds in the tax-favored plan by the end of the tenth full calendar year following the participant’s death. In contrast, the life-expectancy rule allows a beneficiary to spread the distributions over a normally longer period of years at least equivalent to the life expectancy of the oldest EDB.
Example 10. Assume that a participant dies at age 63 on December 15, 2021. The participant’s disabled daughter is an EDB and is the only beneficiary of the participant’s IRA. She may choose distributions under either the ten-year rule or the life-expectancy rule. Thus, if the participant’s daughter chooses the life-expectancy rule, the IRA must begin distributions by the end of the year 2022, over the life expectancy of the daughter. By contrast, under the ten-year rule, the IRA may wait until the end of the year 2031 to make a distribution (delaying distributions for nine years), but must then distribute all its funds.
In many cases, a beneficiary will want to compare projections of respective tax deferrals under the two rules. Again, the projections should take into account all relevant considerations, including the age of the oldest designated beneficiary, the anticipated (and possibly changing) tax brackets of the beneficiaries over future years, and the time value of money.
b. Distributions Based on Life Expectancy in the First Distribution Year. If the beneficiaries include one or more nonspousal EDBs and they use the life-expectancy method, the applicable distribution period for the first full calendar year after the participant’s death for all the EDBs is equal to the life expectancy of the oldest EDB (whether spouse or nonspouse). The tax-favored plan may find that life expectancy in the Single Life Table for the age the beneficiary attained in that first year. For each subsequent year, the applicable distribution period is one year less than in the immediately preceding year.
Example 11. Assume that a participant dies in the year 2021 and was, or would have been, age 63 in that year. Assume that the participant has two EDBs who reach ages 50 and 54, respectively, in the year of the participant’s death. Assume further that the tax-favored plan does not provide an annuity and had an adjusted account balance of $400,000 for the year 2021.
Then, for the year 2022,the tax-favored plan must make a minimum distribution of $13,514. The beneficiaries compute this amount by dividing the adjusted account balance of $400,000 by 29.6 years. The number of years used is the 29.6 years specified in the Single Life Table for an individual age 55 (the age reached by the older designated beneficiary in the year after the participant’s death).
For the following year 2023,assume that the prior year adjusted account balance is $420,000. Then, the tax-favored plan must make a minimum distribution of $14,685. The beneficiaries compute this amount by dividing the adjusted account balance of $420,000 by 28.6 years (one year less than the 29.6 years used for the year 2022).
For the following year 2024,assume that the prior year adjusted account balance is $430,000. Then, the tax-favored plan must make a minimum distribution of $15,580. The beneficiaries compute this amount by dividing the adjusted account balance of $430,000 by 27.6 years (one year less than the 28.6 years used for the year 2023).
7. Death of an Eligible Designated Beneficiary
Upon the death of a plan’s sole EDB who is receiving life-expectancy distributions, any benefit remaining in the plan must be distributed by the end of the calendar year containing the tenth anniversary of the EDB’s death.
Example 12. Assume that a participant dies during 2021 and her only beneficiary is her disabled daughter. The participant’s daughter elects to take minimum distributions over her life expectancy. Assume that the daughter dies young after having received distributions for several years, and the participant’s grandson becomes the new beneficiary. Then, the IRA is required to distribute the remaining balance to the grandson by the end of the calendar year containing the tenth anniversary of the daughter’s death.
A similar rule may apply to the designated beneficiary of a participant who dies before 2020. That is, if such a designated beneficiary is receiving life-expectancy distributions and dies after 2019, any benefit of the designated beneficiary remaining in the plan must be distributed by the end of the calendar year containing the tenth anniversary of the beneficiary’s death.
Unfortunately, though, it appears that the successor beneficiary of an EDB or IDB who was taking distributions under the ten-year rule must continue to take distributions that are within the original ten-year period applicable to the EDB or IDB. Before the SECURE Act, the rule was the same except that the beneficiary of a designated beneficiary had to take distributions that satisfied the original five-year period being used by the designated beneficiary.
8. Managing Distributions Under the Ten-Year Rule
As explained above, a tax-favored plan that is a defined contribution plan must distribute its entire benefit to an IDB by the end of the calendar year containing the tenth anniversary of the participant’s death. Similarly, such a plan must distribute its entire benefit to the beneficiary of an EDB by the end of the calendar year containing the tenth anniversary of the EDB’s death. Although the recipient beneficiary may in each case take the entire benefit in the tenth year, a taxable distribution in that year could push the beneficiary into a very high marginal tax bracket. Thus, careful planning is required to spread the distributions over the ten-year period in such a way as to absorb the distributions in the lowest brackets possible.
On the other hand, ten-year distributions from Roth IRAs and designated Roth accounts enjoy a tremendous advantage. The plans may distribute their entire benefit tax-free in the tenth year, after allowing the benefit to accumulate tax-free for the entire ten-year period. Of course, from a pre-death planning standpoint, a participant or beneficiary must weigh these Roth advantages against the cost of the up-front income taxes that must be paid on the original contributions to the Roth IRA or designated Roth account. That planning may become even more complicated if the participant or beneficiary must factor in liability for federal estate taxes and state inheritance taxes.
9. Special Rule for Beneficiary Rollover from Qualified Plan to IRA
A designated beneficiary may roll over funds from a participant’s qualified plan to an IRA (nontaxable transfer) or Roth IRA (taxable transfer). The rules governing such a rollover are, however, more restrictive for a designated beneficiary who is not the surviving spouse than for a surviving spouse.
a. Rollover by Nonspouse Beneficiary from Qualified Plan to Inherited IRA. A designated beneficiary who is not the surviving spouse may authorize a trustee-to-trustee transfer from a qualified plan to a newly established traditional IRA (nontaxable transfer) or Roth IRA (taxable transfer). A nonspouse beneficiary may also make a nontaxable trustee-to-trustee transfer from a designated Roth account to a newly established Roth IRA. The beneficiary may even be a trust if the beneficiaries of the trust all qualify as designated beneficiaries. In either case, the nonspouse beneficiary continues as a beneficiary (and not the owner) of the recipient traditional IRA or Roth IRA, which is treated as an inherited IRA or inherited Roth IRA.
b. Rollover by Surviving Spouse from Qualified Plan to an IRA. A surviving spouse may roll over funds from the participant’s qualified plan to an IRA or Roth IRA to the same extent the participant could have during his or her lifetime. The spouse may contribute the funds either (1) in his or her name as owner or (2) in the participant’s name, as deceased, with the spouse as beneficiary. Of course, as discussed above, the tax law applies the RMD rules differently depending on whether the surviving spouse becomes the owner of the IRA.
The surviving spouse may even be able to use a modified version of the strategy described above of choosing the most favorable of the ten-year rule or the life-expectancy rule and then rolling over the funds to his or her own IRA before the year of the first scheduled distribution. The spouse must take care though that the distribution is an eligible rollover distribution (e.g., is not the ineligible RMD it would be if rolled over in the year of the first scheduled distribution).
c. Special Rule Allowing an EDB to Switch to the Life-Expectancy Rule. A nonspouse EDB for a participant dying after 2019 may be able to take distributions from an inherited IRA or inherited Roth IRA under the life-expectancy rule even though the transferor plan required distributions under the ten-year rule. To qualify for the longer distribution period, the transferor plan must make the first annual minimum distribution using the life-expectancy rule and consummate the transfer to the IRA or Roth IRA before the end of the first full calendar year following the participant’s death.
Example 13. Assume that a participant dies at age 63 on December 15, 2021, with his disabled daughter as the only beneficiary under his qualified plan. The terms of the plan require distribution of benefits under the ten-year rule. Thus, the plan is required to distribute all the participant’s benefits by the end of the year 2031. The beneficiary, however, wishes to receive the distributions over her life expectancy. To achieve this goal, she withdraws from the plan an amount equal to the first year distribution under the life-expectancy rule. Then, before the end of 2022, she rolls over the balance of the plan in a trustee-to-trustee transfer to an inherited IRA in the name of the participant and elects distributions from the IRA over her life expectancy.
This change of minimum distribution methods is also available to a surviving spouse who rolls over funds from a qualified retirement plan to an inherited IRA or inherited Roth IRA in the name of the participant with the spouse as beneficiary. Note, however, that the transferor plan must similarly make the first annual minimum distribution using the life-expectancy rule and consummate the transfer to the IRA or Roth IRA before the end of the first full calendar year following the participant’s death. Alternatively, the surviving spouse may simply roll over the qualified plan funds to the spouse’s own IRA and apply the minimum distribution rules applicable to the spouse.
10. Identifying Designated Beneficiaries
As explained above, a beneficiary cannot be an EDB or an IDB unless he or she is first a designated beneficiary. A designated beneficiary is generally an individual entitled to benefits after the participant’s death who is specifically designated as a beneficiary pursuant to the governing instrument of a tax-favored plan. The governing instrument may designate beneficiaries by name or in some other identifiable way. For example, the governing instrument’s designation of the spouse of each employee as a beneficiary is an identifiable designation.
Alternatively, and more commonly, the instrument will allow the participant (or the participant’s surviving spouse) to choose designated beneficiaries. It may even allow them to choose a class of designated beneficiaries (e.g., the participant’s children). The regulations, however, treat members of a class capable of expansion or contraction as identifiable only if it is possible to determine the class member with the shortest life expectancy.
Example 14. Assume that a participant designates her “grandchildren” as her beneficiaries when the participant has only two grandchildren, ages 12 and 15. The 15-year old grandchild has the shortest life expectancy. If he should die before the participant, the 12-year old grandchild will have the shortest life expectancy. The birth of additional grandchildren will not change this result since they will necessarily be younger and thus have longer life expectancies. Nevertheless, the participant should specify that grandchildren who are adopted are excluded from the class unless they are younger than the oldest natural grandchild.
Although this Article has already touched on the requirement that a designated beneficiary must qualify as such both upon the death of the participant and on September 30 of the calendar year following the participant’s death, it will be useful to restate and more fully analyze this requirement here. Accordingly, a beneficiary ceases to be a designated beneficiary if he or she receives all his or her benefits, or disclaims his or her interest, before the September 30 date. Note, however, that a beneficiary who dies before the September 30 date without receiving or disclaiming all of his or her interest (which then passes to a successor beneficiary) will continue to qualify as a designated beneficiary.
Example 15. A participant dies on June 1, 2021, naming his four children (A, B, C, and D) as equal beneficiaries of his IRA. Child A signs a qualified disclaimer of her interest in January 2022. Child B receives a distribution of all his interest in February 2022, and Child C dies in March 2022 without receiving or disclaiming her interest, which passes to a successor beneficiary. As of September 30, 2022, Child D is alive and has neither received nor disclaimed his interest. Child C and Child D then are the only designated beneficiaries.
A beneficiary may make a timely disclaimer of his or her interest and thus cease to be a designated beneficiary, even if he or she retains the minimum distribution amount payable for the year of the participant’s death. Nonetheless, the beneficiary must also accept any post-death income earned by the retained minimum distribution, and the disclaimer should meet the requirements applicable to “qualified” disclaimers. The tax-favored plan must also pay the disclaimed amount to the beneficiary or segregate the disclaimed amount in a separate account.
Note that the Service has ruled that a beneficiary whose interest was conditioned on his survival for 60 days could be a designated beneficiary if he or she in fact survived for 60 days. Presumably, the alternative beneficiary would be the designated beneficiary if the primary beneficiary did not survive for 60 days.
Note also that the Service allowed an individual to become a designated beneficiary by reason of a state court reformation of a beneficiary designation form, at least when convincing evidence indicated that was consistent with the participant’s original intention. In a later ruling, however, the Service refused to recognize a trust reformation that attempted to eliminate non-individual NDBs of an IRA and thereby allow the postmortem “creation” of designated beneficiaries.
The Service also refused to allow an executor to name a designated beneficiary. Similarly, where a nonexistent trust was named as the IRA beneficiary, the IRA did not have a designated beneficiary on the date of the owner’s death even though a court later ruled that the surviving spouse was the beneficiary.
The Service has also ruled that a designated beneficiary as of the September 30 date remains a designated beneficiary even though he or she subsequently, and retroactively, ceases to be a beneficiary. In the ruling, beneficiary A, the sole beneficiary of two IRAs was convicted of murdering the owner of the IRAs. Upon exhaustion of beneficiary A’s unsuccessful appeals, the IRA retroactively passed under state law to the succeeding beneficiary B. Although the Service held that previous minimum distributions should have been made to beneficiary B over the life expectancy of beneficiary A, the Service waived imposition of the 50% penalty.
11. Distributions to Nondesignated Beneficiaries (NDBs)
A beneficiary is an NDB if the beneficiary is not a designated beneficiary (i.e., not an EDB or IDB). If an entity that is not an individual (e.g., the participant’s estate) is one of the beneficiaries of a tax-favored plan, the entity is an NDB, and the tax law treats the tax-favored plan as having no designated beneficiary. For example, if a participant names his two children and a charitable organization as the beneficiaries of his IRA, the tax law treats the IRA as having only NDBs. Nevertheless, before the end of the year following the death of the participant, the plan may create separate accounts for the beneficiaries. Then, the presence of NDBs in one or more separate accounts will not taint the EDBs and IDBs in other separate accounts.
In any case though, the SECURE Act did not change minimum distribution requirements for NDBs. Those requirements depend on whether the participant dies before, or on or after, his or her RBD.
a. Participant Dies on or After His or Her Required Beginning Date. If the participant in a plan with NDBs dies on or after his RBD, minimum distributions must be made to the beneficiaries over a period depending on the age of the participant on his or her birthday in the calendar year of his or her death. Starting with the first full calendar year following the participant’s death, the applicable distribution period is the number of years found by reference to such age in the Single Life Table in the regulations, reduced by one year.
Example 16. Assume that a participant dies in the year 2021 and the participant was, or would have been, age 83 in that year. Assume that the tax-favored plan does not provide an annuity and the participant does not have a designated beneficiary. Assume further that the tax-favored plan had an adjusted account balance of $400,000 for the year 2021.
Then, for the year 2022, the tax-favored plan must make a minimum distribution of $52,632. This amount is computed by dividing the adjusted account balance of $400,000 by 7.6 years (determined by using the Single Life Table to find the number of years corresponding to the participant’s age of 83 in the year of his death, and then subtracting one year).
For the following year 2023, assume that the prior year adjusted account balance was $370,000. Then, the tax-favored plan must make a minimum non-annuity distribution of $56,061. This amount is computed by dividing the adjusted account balance of $370,000 by 6.6 years (one year less than the 7.6 years used for the year 2022).
For the following year 2024, assume that the prior year adjusted account balance was $330,000. Then, the tax-favored plan must make a minimum non-annuity distribution of $58,929. This amount is computed by dividing the adjusted account balance of $330,000 by 5.6 years (one year less than the 6.6 years used for the year 2023).
b. Participant Dies Before His or Her Required Beginning Date. If the participant dies before his RBD, the plan must as in past years make distributions to an NDB under the five-year rule. Under the five-year rule, a tax-favored plan must distribute the entire amount of a participant’s benefits by the end of the calendar year containing the fifth anniversary of the participant’s death.
c. The Required Beginning Date After the SECURE Act. The SECURE Act changed the RBD to April 1 of the year following the calendar year the participant reaches age 72 (previously 70½). If, however, the participant retires after age 72, the participant’s RBD is generally still April 1 of the year following the calendar year of retirement (but only under a qualified retirement plan, a section 403(b) plan, or a section 457 government plan). Nevertheless, a qualified plan or a section 457 government plan may by its terms eliminate this retirement alternative altogether (reverting to age 72 in all events). In addition, the retirement alternative still does not apply if the participant was directly or indirectly a 5-percent owner of the employer.
As previously noted, Congress has waived minimum distribution requirements for the year 2020. The waiver does not, however, change the RBD for purposes of determining RMDs for years after 2020. Thus, an RBD of April 1, 2020, remains the RBD for this purpose even though the accompanying payment was waived.
Note that, before the SECURE Act, special rules applied for RMDs to designated beneficiaries of participants who died after their RBDs. Those provisions of the regulations are obsolete. The SECURE Act now treats distributions to designated beneficiaries of participants who die after their RBDs the same as distributions to designated beneficiaries of participants who die before their RBDs.
12. Transition Rules for Beneficiary Distributions Under the SECURE Act
The SECURE Act generally applies to RMDs from defined contribution plans to beneficiaries of participants who die after 2019. The SECURE Act also provides various transition rules that may delay application of the new rules or grandfather the old rules, as follows:
- For governmental plans, the new rules will apply to distributions to beneficiaries of participants who die after 2021.
- For plans under a pre-existing collective bargaining agreement, the new rules will apply to distributions to beneficiaries of participants who die after the earlier of 2021 or termination of the agreement.
- If the participant dies before the date the new rules apply to a plan and his or her designated beneficiary dies after that date, then any successor beneficiary of the designated beneficiary must receive his or her remaining benefit by the end of the calendar year containing the tenth anniversary of the death of the designated beneficiary (and not over either beneficiary’s life expectancy).
For simplicity’s sake, and unless otherwise indicated, this Article generally discusses the rules under the SECURE Act as if the SECURE Act applied to beneficiaries of all participants who die after 2019 without regard to the transition rules above that delay the effective date for some types of plans.