Eligible Designated Beneficiaries
The SECURE Act carved out a special category for these beneficiaries who are not subject to the rule requiring the account be totally distributed in 10 years (except as noted) and may take lifetime distributions or a lump sum distribution. In addition to a surviving spouse, this category includes:
1) Beneficiary of Account Owner Who Died Before January 1, 2020
2) Disabled or Chronically Ill Individual
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A safe harbor for being considered disabled for this purpose is if the individual is determined to be disabled by the Social Security Administration.
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To be eligible the individual must provide to the plan administrator proper documentation of their condition by October 31 of the year following the account owner’s death.
3) 10 Years Younger Than the Account Owner - An individual who is not more than 10 years younger than the account owner (typically a sibling of the decedent but could be someone else).
Example #3: Tom died in 2024 at age 74. His 66-year-old brother, Bill, is the beneficiary of his IRA. Bill is an eligible designated beneficiary because he isn’t more than 10 years younger than Tom.
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Example #4: Jill died in 2024 at age 74. Her 22-year-old grandson, Jack, is the beneficiary of her IRA. Jack is not disabled or chronically ill, and he is more than 10 years younger than Jill, so he is not an eligible designated beneficiary. But Jack is a designated beneficiary.
4) Account Owner’s Minor Child - The proposed regs specify that a minor child is one under the age of 21. Special rules apply to minor children:
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Annual payments based on the child’s life expectancy must be taken until the child reaches the age of majority (specified as age 21)., Use the single life tables.
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Once reaching age 21, the child is then subject to the 10-year rule for the balance of the account.
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Of course, the beneficiary can always take a lump sum distribution.
Other Beneficiaries
Can take a lump sum distribution or:
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Beneficiaries more than 10 years younger than the decedent are subject to the 10-year rule.
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Beneficiaries NOT more than 10 years younger than the decedent may take a lifetime payout.