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Understanding eligible designated beneficiaries for IRAs

On Behalf of | Nov 11, 2022 | Estate Planning

One of the goals of estate planning is to help your beneficiaries get the most out of their inheritances. That means making careful decisions to help ensure that they aren’t faced with unnecessary taxes. 

One area where you need to be mindful of this is your individual retirement accounts (IRAs). When you designate (or change) your beneficiaries for these accounts, you need to know what an “eligible designated beneficiary” is and why these are the people who will likely most benefit from your IRAs.


It goes back to a law enacted at the end of 2019 called the Setting Every Community Up for Retirement Enhancement (SECURE) Act. One of the consequences of this law is that there are now restrictions on how long some beneficiaries have to take distributions on their IRA inheritances.

Before the law, IRA beneficiaries had their estimated life expectancy (as calculated under IRS rules) to take their full distribution. Since IRA distributions are considered taxable income, these distributions can make a big difference in what they have to pay in income taxes. By being able to spread their distributions over many years, a beneficiary can minimize the tax impact.

That’s no longer the case for many beneficiaries. Under the SECURE Act, unless someone is an eligible designated beneficiary, they have to take distributions on the full amount of their IRA inheritance within ten years. If that inheritance is substantial, that can mean a lot of extra income taxes they’d owe over the next decade.

Who qualifies as an eligible designated beneficiary?

These are typically meant to be people who would most need the money provided by an IRA inheritance over time. That’s why they have their estimated life expectancy to take distributions on an IRA inheritance. They are:

  • Surviving spouses
  • Disabled and chronically ill people (or trusts for them) if they meet certain requirements
  • Minor children (until they reach legal adulthood)
  • Non-spouses who are less than ten years younger than the deceased

By understanding who qualifies as an eligible designated beneficiary, you may choose to leave most or all of your IRA assets to them while leaving other assets to those who don’t qualify. Of course, every situation is unique. That’s why it’s always wise to have experienced legal guidance not just as you create your estate planning documents but as you designate beneficiaries through other means.