More On The IRA Tax Law Changes -- December 26, 2019

I track the new IRA rules at this post. For something I thought was relatively simply, it is much more complicated than I ever imagined. From MarketWatch:

Beneficiaries of individual retirement accounts may not see their inheritances for a decade under the newly passed SECURE Act, and when they do get the money, they may be taxed heavily for it.

Under the new retirement legislation, which was signed into law just days before Christmas, beneficiaries of inherited IRAs will need to withdraw that money within 10 years — that is, if they have access to it at all within that time.

Previously, nonspousal beneficiaries could opt to take only required minimum distributions over their life expectancy, rather than taking all the money within five years. (Required minimum distributions are calculated with factors such as the beneficiary’s age, life expectancy and account balance.) That tax-advantaged possibility disappears with the SECURE Act, which only allows one option: up to 10 years to drain the account.

After the 10th year, any money that is left must be taken and the account closed, regardless of the tax consequences. 

Okay, we knew most of that. The "if one has access to it at all within that time."

I was a bit confused on that, but it appears that the writer suggests that if the beneficiary is held in a trust that dictates when/how the money can be withdrawn there could be problems with the new tax laws.

Imagine a 25-year-old grandson named beneficiary of a trust to include an IRA. Imagine if the grantor of the trust dictated that the proceeds could be not be distributed until the beneficiary was 45 years old, which would be 20 years from now. Under the trust, the grandson would not have access to the trust IRA until age 45, 20 years from now. But the new law says the IRA funds must be completely distributed within ten years.

I may not be interpreting the writer's thoughts correctly, but one gets the idea. My hunch is that either there are provisions in the law to address this, or the IRS will formulate rules. I assume the IRS would say the US tax law supersedes the trust instructions and that the IRA must be liquidated in full upon the tenth year. Ouch.

Be that as it may, a relatively simple-sounding change in the law seems to be a bit more complicated than I thought.