Final Regulations Under SECURE Act: What You Need to Know

The IRS released the final regulations to the SECURE Act on July 18, 2024. Although regulations mostly mirror the 2022 proposed regulations, they include some clarifications and changes. Below is a summary of the most significant changes that may impact your retirement and estate planning:

1.  Roth Accounts

 The final regulations provide that amounts held in Roth IRAs are excluded when calculating RMDs during the account owner’s lifetime.

2. Changes to Required Beginning Date (RBD)

SECURE 2.0 adjusts the RBD for account owners. After 2022, the RBD will rise from 72 to 73 years old. After 2032, the RBD will rise to age 75. This provides more time for individuals to defer taking required minimum distributions (RMDs), which allows retirement assets to grow for a longer period.

3. 10-Year Rule for Designated Beneficiaries (DBs) when Account Owner Dies on or after Required Beginning Date (RBD)

If the account owner dies on or after the RBD, a designated beneficiary must take distributions over the 10-year period. Beneficiaries who are not “Eligible Designated Beneficiaries” (EDBs) must deplete the retirement account by December 31 of the tenth year after the account owner dies. Beneficiaries who are EDBs must continue taking annual payments until the beneficiary is no longer an EDB (for example after the child of the account owner reaches the age of majority), after which, final distribution must occur within the following 10 years.

4. 10-Year Rule for Designated Beneficiaries (DBs) when Account Owner Dies before RBD

If the accountholder died before his or her RBD (or if the accountholder’s entire plan balance was in a designated Roth account), the designated beneficiary does not need to take RMDs and may wait until the 10th year to withdraw the funds.

5. Special Treatment for Spouses

Surviving spouses can roll over a retirement plan or take distributions based on their life expectancy. Additionally, a surviving spouse will also have the option to step into the shoes of their deceased spouse, which will allow them to delay taking required minimum distributions until the date their deceased spouse would have reached the RBD, and have the surviving spouse’s beneficiaries treated as the deceased spouse’s beneficiaries if the surviving spouse passes away before distributions begin.

6. Expanded Definition of “Child” for Eligible Designated Beneficiaries

The final regulations expand the definition of “child” to include stepchildren and eligible foster children. This change ensures broader protection for minors under the EDB provisions, aligning more families with beneficial distribution rules.

7. Charities as Remainder Beneficiaries for Special Needs Trusts

A key update under SECURE 2.0 allows a charity to be named as the remainder beneficiary of a “Type II Applicable Multi-Beneficiary Trust” for a disabled beneficiary, typically a special needs trust.

8. Trusts with Multiple Minor Children

If a retirement account is left to a trust with multiple minor children, the distribution deadline is delayed until ten years after the youngest of the account owner’s children reaches age 21. The deadline was previously based on the age of the oldest child.

9. Separate Account Rule for Trust Beneficiaries

A major update in the final regulations extends the “separate account rule” to trusts if the trust terms call for immediate division into separate trusts after the account owner dies. This rule allows each subtrust to be treated individually, which prevents all beneficiaries from being subject to the oldest beneficiary’s life expectancy for RMD purposes. In the past, the separate account rule applied only when the beneficiary designation directed plan interests to separate individuals or separate see-through trusts. 

10. Flexibility in Distributions After the Owner’s Death

The final regulations offer flexibility in distributing the RMD of a particular retirement account in the year of the owner’s death. Rather than having to divide the amount proportionately among all beneficiaries of that account, the distribution can be made to any one beneficiary.

What This Means for You

These regulations, go into effect beginning on January 1, 2025. If you have retirement accounts, these updates may impact how and when distributions must be made to your beneficiaries and could affect your overall estate plan.