Definition: What is the 10-Year Rule for Inherited IRAs?

The 10-Year Rule for Inherited IRAs is a provision introduced by the Setting Every Community Up for Retirement Enhancement (SECURE) Act, which was signed into law in December 2019. This rule applies to beneficiaries who inherit Individual Retirement Accounts (IRAs) from account holders who pass away on or after January 1, 2020.

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• Finance
• Retirement
• IRAs
• Inheritance
• SECURE Act

Under the 10-Year Rule, most non-spouse beneficiaries are required to withdraw the entire balance of the inherited IRA within ten years of the original account holder’s death. This means that the beneficiary must distribute the funds from the inherited IRA by the end of the tenth year following the account holder’s death.

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It is important to note that there are exceptions to the 10-Year Rule. Spouses who inherit an IRA are still allowed to treat it as their own and are not subject to the 10-year distribution requirement. Additionally, certain eligible designated beneficiaries, such as minor children, disabled individuals, and chronically ill individuals, may be able to stretch the distributions over their life expectancy.

The introduction of the 10-Year Rule has significant implications for estate planning and tax strategies. Prior to the SECURE Act, non-spouse beneficiaries had the option to stretch the required minimum distributions (RMDs) from inherited IRAs over their own life expectancy, potentially minimizing the tax impact. However, with the implementation of the 10-Year Rule, beneficiaries may need to carefully consider the timing and amount of distributions to optimize tax efficiency.

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It is advisable for individuals who have inherited an IRA or are planning their estate to consult with a qualified financial advisor or tax professional to understand the specific implications of the 10-Year Rule and develop a suitable strategy to manage the inherited IRA in accordance with their financial goals and circumstances.

Overall, the 10-Year Rule for Inherited IRAs is a provision introduced by the SECURE Act that requires most non-spouse beneficiaries to distribute the entire balance of the inherited IRA within ten years of the original account holder’s death. This rule has significant implications for estate planning and tax strategies, making it crucial for individuals to seek professional guidance to navigate the complexities of managing an inherited IRA.

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Keywords: inherited, beneficiaries, secure, account, individuals, retirement, spouse, holder, distributions