Ed Slott: Secure Act 2.0 Must Fix the 10-Year Rule

Many people, Slott told ThinkAdvisor in a previous interview, “build large retirement accounts where a lion’s share — a big chunk of it — will be left over to beneficiaries and they all have to distribute it within 10 years after death.”

The 10-year rule “is the payout period by which most non-spouse beneficiaries will have to withdraw the balance in their inherited retirement accounts — technically by the end of the 10th year after death,” he said.

The 10-year rule, he continued, “has essentially replaced the stretch IRA for most non-spouse beneficiaries, resulting in more of the funds being taxed in a shorter window (the 10 years) vs. the old stretch IRA where beneficiaries could extend RMDs for decades, and the tax could be deferred over a longer period.”

As to the Senate HELP Committee’s Rise & Shine Act and the Senate Finance Committee’s EARN Act, “there’s really nothing here that people were clamoring for,” Slott asserts.

“Yes, there are a few items to help plans administratively, and adding new ways for people to access their retirement funds early, like for financial hardships or terminal illness, and new ways to amp up Roth account participation (which is in there as a revenue raiser — another sign that Congress relies on Roths for revenue),” Slott said.

The bills include “a lot of tinkering around the edges but there is nothing here that anyone would say ‘Wow, that’s a game changer!’ like the changes in the original Secure Act” of 2019.

Even the proposal to raise the required minimum distribution age “to 75 is ridiculous because it would not be effective for 10 years! Who cares about that now? Anyone age 72 now would be in their 80’s or dead by that time, but again, it sounds good enough for Congress to pat themselves on the back over.”