Which Beneficiaries Are Affected?

Annual RMDs will apply starting in 2025 if all of the following conditions are met:

• The beneficiary is a non-spouse
  
  
• The account inherited is a traditional IRA
  
  
• The original owner died on or after their Required Beginning Date (RBD)
  
  • RBD is April 1 of the year following the year the IRA owner reaches RMD age.
    
    
• The beneficiary is subject to the SECURE Act 10-Year Rule
  
  

Understanding the “At Least As Rapidly” Rule

Leading up to the final regulations, the general consensus was any beneficiary could take distributions in any manner they wished over the 10-year period. However, the final regulations stated otherwise and reaffirmed the long-standing “at least as rapidly” rule meaning:

• If the IRA owner was already required to take RMDs, distributions must continue at least as rapidly after their death.
  
  
• This now combines two rules:
  1) Beneficiaries must take annual RMDs and 2) fully deplete the account by the end of the 10th year following the year of death.

Beneficiaries NOT Subject to the Annual RMD Requirement

Annual inherited IRA RMDs do not apply to:

• Beneficiaries of a decedent who died before their RBD
  
  
• Inherited Roth IRA beneficiaries
  
  

Impact of the 10-Year Window

Regardless of the frequency of withdrawals taken, the 10-year window for impacted beneficiaries can have several tax consequences. These larger distributions may:

• Push the beneficiary into higher marginal tax brackets
  
  
• Trigger IRMAA surcharges
  
  
• Increase the taxable portion of Social Security benefits
  
  

Value of Inherited Roth IRAs

The value of a Roth IRA for the owner is already well-established, but under the SECURE Act’s 10-year rule, it now becomes an even more valuable wealth-transfer vehicle:

• No annual RMDs, even under the 10-Year Rule
  
  
• Ability to defer distributions for a decade
  
  
• Tax-free lump sum in year 10
  
  
• No impact on IRMAA or Social Security taxation
  
  
• Clean integration into multi-generational wealth strategies
  
  

This creates an opportunity to illustrate the long-term advantages of a Roth conversion strategy during a client’s lifetime, not only for income planning, but also for legacy planning purposes.

Helping your clients navigate these confusing beneficiary rules is the perfect way to reinforce and to strengthen the relationships you’ve worked so hard to cultivate. 

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