Definition
The beneficiary 10-year rule is the maximum period that certain beneficiaries may keep inherited retirement accounts in a beneficiary account.
Watch/listen to a video about the 10-year rule here
The ten-year rule applies to the following classes of beneficiaries
A. Designated beneficiaries that are not eligible designated beneficiaries,
B. Eligible designated beneficiaries, where the participant dies before the date they were supposed to start taking required minimum distributions (RMDs). In this case, the eligible designated beneficiary may choose either (a) the 10-year rule or (b) the life expectancy rules, where they would take distributions over their life expectancy. The plan document determines the available options and applicable rules.
C. Successor beneficiaries of primary beneficiaries that were taking distributions over the primary beneficiary’s applicable life expectancy
The following applies under the ten-year rule:
For primary beneficiaries:
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- If the participant died before the date they were supposed to start taking RMDs, distributions are optional during the first nine years that follow the year of the participant’s death. But, the account must be fully distributed no later than the end of the 10th year following the year of the participant’s death. This applies to both designated beneficiaries and eligible designated beneficiaries who are subject to the 10-year rule, whether by election or under the terms of the governing plan document.
- If the participant died on or after the date they were supposed to start taking RMDs) the beneficiary must take annual distributions over their single life expectancy, beginning by December 31 of the year that follows the year in which the participant died. And the account must be fully distributed no later than the end of the 10th year following the year of the participant’s death. This rule applies only to designated beneficiaries that are not eligible designated beneficiaries.
For successor beneficiaries, where the primary beneficiary was taking life expectancy distributions:
- The successor beneficiary must continue taking life expectancy distributions based on the primary beneficiary’s age. And the account must be fully distributed no later than the end of the 10th year, following the year of the primary beneficiary’s death.
For retirement accounts inherited before 2020
The ten-year rule does not apply to beneficiaries that inherited retirement accounts before 2020. This is because it was introduced under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019, Pub.L. 116–94, and became effective for retirement accounts inherited after 2019. However, if the primary beneficiary was taking life expectancy distributions, and dies after 2019, then the successor beneficiary must continue taking life expectancy distributions based on the primary beneficiary’s age. And the account must be fully distributed no later than the end of the 10th year, following the year of the primary beneficiary’s death.
Referring Cite
IRC § 401(a)(9)
Additional Helpful Information
- Annuitized accounts: When the inherited account is an annuitized annuity, the terms of the contract must be consulted to determine the options available to the beneficiary.
- Nondesignated beneficiary: The 10-year rule is not an option for a nondesignated beneficiary
