When someone inherits an inherited IRA, that person is referred to as a successor beneficiary. This is different from a contingent beneficiary. A contingent beneficiary is the person designated to inherit an IRA if the primary beneficiary is unavailable. A successor beneficiary is the person who inherits the IRA after the original inheritor dies.
Successor beneficiaries now fall into one of three possible categories. First, those who inherit an IRA from a post-SECURE Act eligible designated beneficiary. Second, those who inherit from a pre-SECURE Act original beneficiary. And third, those who inherit from a post-SECURE Act non-eligible designated beneficiary.
In the first two scenarios, the successor beneficiary will most likely get a full 10 years before any distribution is required. However, if the successor beneficiary falls into the third category, the original 10-year clock keeps ticking. In other words, successor beneficiaries in the third category must distribute all assets from the IRA before the end of the tenth year following the original IRA owner’s death. If the successor beneficiary inherits the IRA seven years after the original owner dies, the successor beneficiary will only have three years before the full distribution must be completed.
It is worth noting that anyone who inherits an IRA from an eligible designated beneficiary cannot be considered an eligible designated beneficiary themselves, even if they meet the eligibility criteria. The IRS language governing this situation states very clearly: “If an eligible designated beneficiary dies before the portion of the employee’s interest is entirely distributed…the remainder of such portion shall be distributed within 10 years after the death of such eligible designated beneficiary.”
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