In February 2022, the Treasury Department and IRS released long-awaited proposed regulations under the Setting Every Community Up for Retirement Enhancement Act (SECURE Act) and SECURE 2.0 Act addressing required minimum distributions from qualified retirement plans and IRAs.^[1] These proposed regulations, running over 200 pages, represent the most comprehensive overhaul of the RMD rules in decades. For individuals with significant retirement assets—and for the estate planners and fiduciaries who advise them—the proposed regulations resolve several critical ambiguities while creating new planning considerations.

The Ten-Year Rule and Its Complications

The SECURE Act, enacted in December 2019, fundamentally changed the distribution landscape for inherited retirement accounts. Before the SECURE Act, most designated beneficiaries could stretch distributions over their individual life expectancies. The SECURE Act replaced that regime with a ten-year rule for most non-eligible designated beneficiaries, requiring complete distribution of the inherited account by December 31 of the tenth year following the account owner's death.^[2]

The statute itself was ambiguous on a critical question: during that ten-year period, must the beneficiary take annual distributions, or can the beneficiary simply empty the account by the end of the tenth year? The proposed regulations answered this question in a way that surprised many practitioners. If the account owner died on or after the required beginning date for RMDs, the beneficiary must take annual distributions during the ten-year period, calculated using the beneficiary's life expectancy. If the owner died before the required beginning date, no annual distributions are required—the beneficiary need only empty the account by the end of year ten.

The IRS Transition Relief

The annual distribution requirement caught many beneficiaries and their advisors off guard. Recognizing the confusion, the IRS issued Notice 2022-53 in October 2022, waiving the excise tax penalty for beneficiaries who failed to take annual RMDs from inherited accounts for 2021 and 2022.^[3] The IRS subsequently extended this relief through 2023 in Notice 2023-54, issued in July 2023, acknowledging that the proposed regulations had not yet been finalized and that continued transition relief was appropriate.

This repeated extension of transition relief underscores the complexity of the new regime. Beneficiaries who inherited accounts in 2020 or later—particularly those who inherited from owners who had already begun taking RMDs—face a regulatory landscape that remains unsettled. While the penalty has been waived, the underlying annual distribution requirement in the proposed regulations has not been withdrawn.

Eligible Designated Beneficiaries: The Exceptions

The ten-year rule does not apply to all beneficiaries. The SECURE Act carved out five categories of eligible designated beneficiaries who may still use the life-expectancy stretch: surviving spouses, minor children of the account owner (but only until they reach the age of majority), disabled individuals, chronically ill individuals, and beneficiaries who are not more than ten years younger than the account owner.^[4]

The proposed regulations provide detailed guidance on each of these categories. For disabled beneficiaries, the regulations cross-reference the Social Security Act definition of disability, requiring inability to engage in any substantial gainful activity by reason of a medically determinable impairment that is expected to result in death or to be of long-continued and indefinite duration. For minor children, the regulations clarify that the age of majority for these purposes is 21—not 18, as many practitioners had assumed—and that upon reaching 21, the ten-year clock begins.

Planning Considerations for Retirement Assets in Estate Plans

The proposed RMD regulations have significant implications for estate planning with retirement assets. Several strategies deserve particular attention in light of these developments.

First, the interaction between the ten-year rule and conduit trusts warrants careful review. Many estate plans created before the SECURE Act used conduit trusts—trusts that require distributions from the retirement account to be passed through to the trust beneficiary. Under the old stretch rules, a conduit trust allowed the beneficiary to use his or her own life expectancy for RMD purposes. Under the ten-year rule, a conduit trust may force accelerated distributions to the beneficiary, potentially defeating the purpose of the trust (asset protection, management for a spendthrift beneficiary, etc.). Accumulation trusts, which allow the trustee to retain distributions inside the trust, may now be more attractive despite the compressed trust tax brackets.

Second, Roth conversions have become an even more powerful planning tool. Because Roth IRAs are not subject to RMDs during the owner's lifetime and because distributions from inherited Roth IRAs are generally income-tax-free, converting traditional IRA assets to Roth assets removes the annual RMD problem for both the owner and the beneficiary. The ten-year rule still applies to inherited Roth IRAs, but the distributions are tax-free, making the timing of distributions a matter of convenience rather than tax optimization.

Third, charitable planning with retirement assets deserves renewed attention. For individuals with charitable intent, naming a charity as beneficiary of retirement assets avoids both the income tax on distributions and the ten-year rule entirely. Qualified charitable distributions from IRAs—available to individuals age 70½ and older—allow up to $100,000 per year to be distributed directly to charity, satisfying the RMD while excluding the distribution from gross income.

What Comes Next

As of this writing, the proposed regulations remain just that—proposed. The IRS received thousands of public comments, and final regulations are expected but not yet scheduled. The continued issuance of transition relief suggests that the IRS recognizes the need for a reasonable implementation timeline. In the interim, beneficiaries and their advisors should plan as if the annual distribution requirement will be part of the final regulations, while taking comfort that penalties for missed distributions in the transition period have been waived.

For individuals reviewing their estate plans, particularly those with significant IRA or 401(k) balances, the proposed regulations are a reminder that retirement account beneficiary designations require the same level of attention as wills and trusts. The interaction between the ten-year rule, trust provisions, and income tax planning creates a web of considerations that demands careful analysis. Our firm regularly advises clients on structuring their estate plans to account for these evolving rules.^[5]