Of all the many provisions in the SECURE 2.0 Act, none has been more perplexing than Section 327, which changed the rules for spouse beneficiaries. It has been hard to figure out what Congress intended in drafting section 327. The legislative history is scant. On July 18, the IRS issued proposed regulations on the required minimum distribution (RMD) rules from the SECURE 2.0 Act. One significant part of these proposed regulations is the IRS’s interpretation of Section 327.
The Senate Finance Committee Report, which explains the provisions of SECURE 2.0, said only the following: “Section 327 allows a surviving spouse to elect to be treated as the deceased employee for purposes of the required minimum distribution rules.”
But what exactly does allowing the surviving spouse to be treated as the deceased spouse mean?
The statute is not clear, but in the newly released proposed regulations, the IRS explains the rules.
Under the proposed regulations, a surviving spouse can delay RMDs until the IRA owner would have reached the age when RMDs must start (currently age 73). When death is before the required beginning date (RBD – currently April 1 of the year after the year a person reaches age 73 for most), this happens automatically.
When RMDs start on this inherited IRA, the surviving spouse beneficiary will calculate RMDs using their age and the Uniform Lifetime Table. The use of the Uniform Lifetime Table to calculate spousal beneficiary RMDs is new and will result in smaller RMDs. This table has only previously been used to calculate RMDs during an individual’s lifetime.
The new regulations also make it clear that when 327 applies, the IRA is still considered an inherited account. This means that the 10% early distribution penalty does NOT apply, which is good news for young spouse beneficiaries who may need the money. Also, in more good news, despite the automatic inherited IRA creation, the regulations clarify that a spousal rollover can still be done at any point.
Example: Derek dies in 2024 at age 50. His beneficiary is his spouse, Katie, who is age 54. Katie will not have to take RMDs on the automatically created inherited IRA until Derek would have been required to start taking them. This will allow her to delay RMDs for decades. When she starts taking RMDs, she will use her age and the Uniform Lifetime Table.
Katie can take distributions at any time from the inherited account. These distributions will always be penalty-free regardless of her age. She can do a spousal rollover to her own IRA at any time.
Proposed Regs Bring New Rules for Spouses Beneficiaries When Death is Before the RBD
Specializing in private wealth management, we provide education, guidance, and strategies to help you achieve a tax-efficient retirement income.
Investment advisory services offered through Donato Wealth Management, PLLC, dba Empower Wealth Management (“Empower Wealth Management” or “EWM”),
an SEC registered investment adviser that only conducts business in jurisdictions where it is properly registered, or is excluded or exempted from registration requirements. Registration as an investment adviser is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability. The firm is not engaged in the practice of law or accounting.
The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional adviser before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned, or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Personal investment advice can only be rendered after the engagement of EWM, execution of required documentation, and receipt of required disclosures. All investment and insurance strategies have the potential for profit or loss. Asset allocation and diversification will not necessarily improve an investor’s returns and cannot eliminate the risk of investment losses. Past performance is no guarantee of future results. For more information, please go to https://adviserinfo.sec.gov and search by our firm name or by our CRD #305031.
Insurance products and tax services are offered through Senior Tax and Insurance Advisors, PLLC, dba Empower Wealth Group (“Empower Wealth Group” or “EWG”). Any comments regarding safe and secure investments and guaranteed income streams refer only to fixed insurance products. They do not in any way refer to investment advisory products offered through EWM. Rates and guarantees provided by insurance products and annuities are subject to the financial strength of the issuing insurance company; not guaranteed by any bank or the FDIC. EWG is not affiliated with or endorsed by the U.S. Government, Social Security Administration, nor the federal Medicare program. You may be contacted by a licensed insurance agent. Calling the number above will direct you to a licensed insurance agent. EWG may not offer every plan available in your area. Any information provided is limited to plans available in your area. Please contact Medicare.gov or 1-800-MEDICARE.
EWM and EWG are both affiliated companies of Empower Wealth, LLC (“Empower”). Investment adviser representatives of EWM may have a financial incentive to recommend tax and insurance products and/or services offered through EWG which presents a conflict of interest. This conflict is addressed by EWM’s adoption of its Code of Ethics, which requires that all EWM’s Associated Persons place the interest of clients ahead of their own. Clients of EWM are also free to choose their own tax and/or insurance professionals and are under no obligation to utilize the services offered through any related entities or persons associated with Empower.
Strategic Partners listed on this page are not employees of EWM and are not affiliated through common ownership.
We do not offer every plan available in your area. Any information we provide is limited to those plans we do offer in your area. Please contact Medicare.gov or 1-800-MEDICARE to get information on all of your options.
© Empower Wealth Management All Rights Reserved.
