Changes to Retirement Law in 2020

Beginning January 1, 2020, under the Secure Act, beneficiaries who inherit an IRA from someone other than a spouse are no longer able to stretch their distributions out over the lifetime of the oldest beneficiary of the retirement plan. Now, the longest period of time over which a beneficiary may stretch an inherited IRA from a non-spouse is ten (10) years.

If the beneficiary of the IRA is a trust, the entire IRA must be distributed within five (5) years of the participant’s date of death.

Surviving Spouse beneficiaries can still use a spousal rollover for IRAs they inherit from the deceased participant spouse. Spousal rollovers are treated like the Surviving Spouse’s own IRA: the Survivor can name new beneficiaries and can defer income taxes until the Surviving Spouse reaches the age at which minimum distributions must be paid. The Required Minimum Distributions (RMDs) will still be based on the life expectancy of the Surviving Spouse.

NOTE: Also under the Secure Ace, the minimum age at which a person must take distributions from their retirement accounts has increased from 70 ½ to age 72.

ALSO NOTE: These changes only affect IRAs from the year 2020 going forward. Those beneficiaries who have already inherited an IRA from a deceased participant in 2019 or earlier will not see a change to their distribution schedule.


There are some alternatives that an IRA participant can make right now which may lessen the income tax impact for their designated beneficiaries. Be sure to contact your accountant before you implement any of the options discussed below.

A New Kind of Beneficiary – The “Eligible Designated Beneficiary” is a new kind of beneficiary under the Secure Act.  If qualified, an eligible designated beneficiary will still be able to use the lifetime stretch-out rules that existed under earlier laws.

Persons who qualify as an eligible designated beneficiary are limited to beneficiaries who: 1) are the participant’s children who are minors; 2) are chronically ill; 3) are less than ten (<10) years younger than the IRA participant; and 4) Surviving Spouses. There are two exceptions to the rule for minor children: once the minor child reaches the age of majority, the 10 year rule applies; and minor grandchildren do not qualify as an eligible designated beneficiary.

Consider Income Tax Bracket of Beneficiary – You may wish to leave a Roth IRA to a beneficiary who is in a high income tax bracket (or who you expect to be in a high income tax bracket in the future) because distributions from a Roth IRA are not subject to income tax. You may want to leave a traditional IRA to beneficiaries who are in a low income tax bracket (or who you expect to be in a low income tax bracket in the future) since the 10 year rule may result in an increase in income tax.

It may make sense for you to convert your traditional IRA to a Roth IRA and, in essence, prepay the income tax liability for distributions. Your heirs are not allowed to do this after your death; it must be done by the IRA participant during his or her lifetime. Conversions may be done in fractions of the whole so that the income tax liability is not realized all at one time. Be sure to check with your accountant about how to do this.

Consider the Timing of Distributions under the 10 Year Rule – The new rule does not require the beneficiary to withdraw sums every year for ten years the way the stretch-out beneficiary is required to do under the old law. Instead, the requirement is that the beneficiary take all of the money out by the end of the tenth year after the death of the participant. Whether the beneficiary waits ten years and then takes out the whole sum or takes it out in installments over the ten year period depends on whether the IRA is a traditional IRA or a Roth IRA.  It makes no difference when the money is withdrawn by the beneficiary with the Roth IRA since there is no income tax liability for withdrawing the sums.  A beneficiary of a traditional IRA is better off, tax-wise, taking the money in installments over a decade of time.

Naming Heirs as Beneficiaries with Surviving Spouse – Another way to handle the changes in the law is to consider naming your heirs as co-beneficiaries with your spouse at your death. Elevating your beneficiaries so they receive money during your spouse’s lifetime impacts their share as seen in the following example:

At your death, your spouse and two children are named as your primary beneficiaries, each with an equal share of your IRA. At your death, your spouse would receive 1/3 which he or she can roll over into a spousal rollover and treat as if she were the participant.  The other 2/3 would be distributed to your children over a ten year period from your date of death.  Upon the death of your spouse, your children would get an additional ten years to withdraw the remaining money from your spouse’s spousal rollover; this results in your children getting 20 years to inherit the money from your original IRA instead of the 10 they would get if they inherited only on the death of the surviving spouse.

Charitable Giving – The new rule may make gifts to charities more attractive. A qualified charitable remainder trust enables your beneficiaries to receive income after your death until the trust term ends or the beneficiaries die. The remaining assets are then transferred to the charity.