The Secure Act Flip-Flop

In this episode of Berry’s Bites, Chris Berry discusses The Secure Act Flip-Flop.

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The Secure Act. Welcome to Berry’s bites, please join our host attorney and financial advisor Chris Berry. So the secure act was passed in 2019 became effective January 1st so the first thing it said is your required minimum distribution on your IRAs individual retirement accounts or things like 401ks basically any type of qualified pre-tax money instead of it being 70 and a half which it had been now the RMD age is 72.

Once you turn 72 now you’re forced to take money out of these pre-tax accounts whether you like it or not instead of 70 and a half but that’s not the real reason the government passed the law the real reason is they wanted to only allow a 10-year stretch out upon that meaning that if you inherit a 401k you inherit an IRA you inherit a 43b you inherit a Roth.

You have to as a beneficiary take it out of that type of account within 10 years and if it’s a pre-tax account that means all the taxes have to be paid within 10 years when the secure act originally passed so interpretation one of that so again there’s like congress and government passes laws but then the IRS can interpret that and they have these things called publications. So the first interpretation of that is okay let’s say someone passes away and there are taxes due by year 10 at any point in here you pay the tax so all the tax could theoretically be paid in year 10 if you wanted to which was different because previously when you inherited an IRA, you had to take RMDs and then they flip-flopped and there was a publication that came out.

And I want to say this was April of 2020 that said you know what okay yeah we have the Secure Act that says all the taxes have to be paid within 10 years but you’re required to take out an RMD required minimum distribution every year based on your life expectancy and then by year 10 you have to make sure you pay everything off and then very shortly after that they said no no no we made a mistake that was just a holdover from the publication before we forgot to change it the way it works is how we originally said is that okay just all the taxes have to be paid within 10 years there’s no RMDs and then just last week the IRS issued another publication saying no this is how we’re going to do it now with the Secure Act because it’s already like two years after the security became effective.

So you would think that we had this figured out no what they said is okay let’s say the person who passed away is 72 well now if they are over age 72 then you’re going to have to maintain whatever their RMDs are and still by year 10 you have to pay all the taxes now if it’s a Roth there are no taxes that have to be paid but it has to come out within 10 years. So really in the big scheme of things it doesn’t change that much, it’s just more of an accounting issue and then it’s just interesting seeing the IRS and government like flip-flopping four times for something that was already like made effective in 2020.

So where we’re at today is that if you have a loved one and let’s say they’re over the age of 72 which means now they’re taking out RMDs and then they pass away you still have to take out these RMDs whatever their record minimum distribution would be and then by year 10 all the taxes have to be paid so you could take out more than the RMDs but now there is this annual like accounting you need to make sure you take out your RMD for these inherited IRAs and 401ks and stuff just a little detail that I thought it was crazy that we’ve flip-flopped on this four times within two years. Thank you.

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