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Ask the Hammer: What Should I Know About the IRS's Secure Act Regulations?

Jeffrey "The Buckinghammer" Levine of Buckingham Wealth Partners answers a question about the IRS's Secure Act regulations that many Retirement Daily Readers are curious about.

In this episode of Ask the Hammer, a handful of Retirement Daily readers have asked this question:

The IRS recently released its long-awaited Secure Act regulations… what should people know about that?

Our expert, Jeffrey "The Buckinghammer" Levine of Buckingham Wealth Partners, is here to answer. 

Levine starts by defining what exactly the Secure Act regulations even are. He explains that Congress writes the law, and then the IRS proposes regulations to clarify what Congress meant when they wrote the law. Many of these regulations are in the Secure Act, which was an act originally from December of 2019, just before the pandemic hit.

Levine says that there isn't enough time to thoroughly go through all the Secure Act regulations, but he will cover the highlights. 

The most prominent regulation is the one in which the IRA proposes changes regarding the "10-year rule" for non-spouse beneficiaries that inherited IRAs, 401(k)s, etc. Before the Secure Act, non-spouses were able to take distributions from inherited accounts throughout life expectancy, but now, due to the 10-year rule, it is required that those accounts be empty 10 years after the death of the individual who originally owned the account.

Now, there are some nuances to this. If the deceased person passed away before their required beginning date (RBD) — which is typically April 1 of the year after their 72nd birthday — the 10-year rule applies, and the inheritor just has to take all of the money out of the account by the 10th year. However, if the deceased person passed away after their RBD, the person who inherited the account must take RMDs (required minimum distributions) for the first nine years and completely empty the account by the 10th year. 

Levine notes that, normally, a person is not required to take RMDs until the year after someone dies, so this only impacts people who inherited in 2020, non-eligible designated beneficiaries (with the 10-year rule), and non-eligible beneficiaries who got the account from someone who died on or after their RBD.

Another highlight is that surviving spouses do get a special rule with RMDs. The surviving spouse can wait to take RMDs until the deceased spouse would have had to start taking RMDs. If the deceased spouse was born on or after July 1, 1949 — meaning they turned 70.5-years-old on or after January 1, 2020 (when the act first became effective) — the surviving spouse can still wait to take RMDs. If the spouse was born earlier, then this does not apply and the surviving spouse does need to take RMDs before the deceased spouse would have been 70.5-years-old.

It is important to point out that these regulations are proposed, meaning that things can change and that there is no need to overreact. There will be a comment period where the IRS will receive feedback, and Levine says that this comment period will likely last until about mid-May. Levine expects the regulations to be finalized before the end of 2022. 

Watch the video above to learn about some more of the intricate details of the Secure Act regulations.

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