By Andy Ives, CFP®, AIF®
IRA Analyst

For those who inherit IRA accounts in 2020 or later, the SECURE Act permits five groups of people to stretch required minimum distribution (RMD) payments over their life expectancy. As I touched on in a recent Slott Report article (“The Stretch on a Stretcher,” Jan. 13), these five groups fall under the new term “Eligible Designated Beneficiaries,” or EDBs. Two of the five EDBs are self-explanatory:

1.) Spouses.

2.) Those not more than 10 years younger than the deceased account owner. These people do not need to be related to the deceased account owner.

The third group requires a little more detail.

3.) Minor children of the account owner. The minor child cannot be a grandchild of the account owner and qualify for the stretch. He or she cannot be the minor child of the neighbor, and cannot be a niece or nephew and qualify. The minor must be the deceased account owner’s child. Even then, the stretch is only allowed until the minor child reaches the age of majority or is still in school, up to age 26.

The last two groups of EDBs generate the most questions.

4.) Disabled. As we have written in the past, this is very high hurdle to get over. The tax code’s definition of a disabled person is incredibly limiting. Simply “retiring on disability” or collecting a disability pension does not necessarily mean you qualify as a disabled person eligible to stretch inherited IRA RMD payments.

From Tax Code Section 72(m)(7), the meaning of disabled is described as such: “For purposes of this section, an individual shall be considered to be disabled if he is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long-continued and indefinite duration. An individual shall not be considered to be disabled unless he furnishes proof of the existence thereof in such form and manner as the Secretary may require.”

5.) Chronically ill. This final sub-group of EDBs generates the most confusion. Fortunately, the IRS does provide detailed guidance as to the qualifications necessary to be considered “chronically ill.” Under the SECURE Act, a chronically ill individual is a based on the definition under the tax rules for defining long-term care services under long-term care insurance policies.

From Tax Code Section 7702B(c)(2) and under the SECURE Act, to qualify as a chronically ill individual the person would have to be certified (by a licensed health care practitioner) to be unable to perform at least two activities of daily living for at least 90 days, or require “substantial supervision” due to a severe “cognitive impairment.”

The SECURE Act has drastically limited the number of people who can stretch IRA payments. Going forward, designated beneficiaries that do not fall into one of the five EDB categories listed above will be forced to empty the inherited IRA by the end of the 10th year after death.