QUESTION:
My sister and I were named as the non-spousal beneficiaries of my dad’s self-directed IRA. We are in our 50s and my dad passed away in 2023. My mom had already passed away about 5 years back. Can we stretch the self-directed IRA payments over our life expectancy?
ANSWER:
Stemming from the SECURE Act, if death occurs on or after the required beginning date (RBD) of the self-directed IRA account holder, a non-eligible designated beneficiary (like you and your brother) must start taking annual required minimum distributions (RMDs) years 1-9 and then fully distribute the remaining balance in the inherited IRA by December 31, 2033.
What is a Non-Eligible Designated Beneficiary (NEDB)
You’re a non-eligible beneficiary if you are not the spouse of a self-directed IRA account holder or don’t fall under the EDB list referenced below. As a result, the self-directed IRA must be fully distributed within 10 years after the solo 401k plan participant’s death. The 10-year deadline is December 31 of the 10th year.
SECURE Act
You have The SECURE Act to thank for killing the favorable stretch option when a non-spouse beneficiary inherits a decedent’s IRA including a self-directed IRA.
Under the SECURE Act and effective for years 2020 and after if the self-directed IRA account holder deceased on or after their required beginning date (RBD) which is age 73, and the beneficiary of the self-directed IRA is not the decedent’s spouse or any individual listed in the below EDB list, then the beneficiary is required to start taking distributions immediately following the year of the self-directed IRA holder’s death from a beneficiary IRA. In sum, annual distributions are required for the first 9 years and the beneficiary IRA must be fully depleted by the end of the 10th year.
Self-Directed IRA Eligible Designated Beneficiary (EDB) List
EDBs are designated beneficiaries who are:
- The surviving spouse of the self-directed IRA account holder;
- A minor child (under age 21) of the self-directed IRA account holder;
- A disabled individual [as defined under Code 72(m((7)];
- A chronically ill individual;
- A person not more than 10 years younger (based on birthdates of the deceased self-directed IRA account holder and the beneficiary) than the self-directed IRA account holder
