Stretching Your IRA Assets or Non-qualified Annuity Assets & Secure Act FAQs


A simple way to make your money mean more to future generations:

You’ve worked hard to build your retirement savings and may have additional assets you want to leave for your loved ones.

Taking only the Required Minimum Distribution (RMD) from your IRA or allowing your nonqualified annuity to continue to grow tax-deferred, could help minimize your own taxes and leave funds for your beneficiaries.

However, when these assets pass to your beneficiaries, taking a distribution as a lump sum can cause significant tax burdens for your loved ones. Your beneficiary can reduce this tax burden by choosing to stretch out payments over the beneficiary’s lifetime rather than taking a lump sum.

Stretching out payments across the beneficiary’s lifetime allows the money to grow tax deferred, spreads the tax liability across many years and may avoid higher tax brackets.

Taking advantage of compound growth and tax deferral by stretching out payments, the IRA or non-qualified annuity can grow and compound on a tax-deferred basis. The accumulated earnings are not taxed until the beneficiary receives them. This deferral allows your beneficiary to maximize growth and minimize the tax burden.

Income Flexibility:

Unless your benefits are paid under a restriction you have imposed or a contract is annuitized, a beneficiary can choose to increase payout amounts or cash out at any time. This means that your beneficiary can access additional amounts should a special need arise.

Transfer of Wealth to Multiple Generations:

If your beneficiary stretches out payments from your IRA or non-qualified annuity, but dies before all benefits are paid, any remaining balance can be passed on to future generations. Payments can continue to be stretched out over the original stretch period.

How does an inherited annuity contract work?

By transferring annuity death claim proceeds into an inherited annuity contract, the account value may continue to accumulate on a tax-deferred basis. An annual RMD must be taken on the inherited IRA, and an annual 72S payment is required on an inherited non-qualified policy. The payments are based off the beneficiary’s life expectancy.

What if it Is an inherited IRA AND the death occurred after January 1, 2020?

The SECURE Act made a change in 2020 to inherited IRAs. For deaths that occur on January 1, 2020 or later, beneficiaries will need to withdraw all assets from the inherited IRA within 10 years following the date of death of the original owner. This change does not apply to non-qualified annuities. Learn more here.


The SECURE Act stands for Setting Every Community Up for Retirement Enhancement Act.

The new legislation was signed into law on December 20, 2019 and includes several new and updated provisions related to retirement planning, such as RMDs, IRA contributions and inherited IRAs.

Here’s a quick look at key changes:

  • RMD age increased from 70 ½ to 72
  • Removes age limit for Roth and traditional IRA contributions
  • Age for in-service distributions from pension and 457(b) plans lowered to 59 ½
  • Qualified distributions of up to $5,000 permitted for birth/adoption of a child
  • Inherited IRA beneficiaries must generally withdraw all assets within 10 years of the original owner’s death.

How does the Act affect RMD (Required Minimum Distribution) payments?

  • For anyone who turns 70 ½ on or after January 1, 2020, the age for required minimum distributions increased from age 70 ½ to age 72.
  • For anyone over age 72, payments from an employer plan may still be deferred until retirement.

Will systematic RMD payments continue?

For contract owners turning 70 ½ on or after January 1, 2020 who had set up to begin ESP payments, we have postponed payments until the year they turn 72.

Payments will automatically begin using the same options they selected, such as payment frequency, payment method and tax withholding.

If they wish to still receive a payment for 2020, issuers tend to honor the terms of the ESP and will typically also waive any early withdrawal charges or market value adjustment. Contract owners who wish to receive a 2020 payment can submit a letter of instruction or make the request over by phone to the Issuing Company.

For employer plans, the payment will now be considered an eligible rollover distribution and subject to mandatory 20% federal income tax withholding.

Many issuing Insurer’s are still accepting inherited IRA business, and have made changes to contracts, forms and processes to ensure they can continue accepting non-spousal inherited IRA business.

The SECURE Act generally requires beneficiaries to withdraw qualified assets more quickly:

  • Where the original owner dies on or after January 1, 2020, beneficiaries will generally have to withdraw all assets from the inherited IRA or other qualified contract within 10 years following the death of the original owner. Previously, they could take distributions over their entire life expectancy.
  • Exceptions to the 10-year limit include assets left to a surviving spouse, a minor child, a disabled or chronically ill individual, and beneficiaries who are no more than 10 years younger than the original owner.
  • For inherited IRAs and other qualified contracts where the original owner died on or before December 31, 2019, there are no changes during the life of the beneficiary, but the 10-year limit will apply after the beneficiary’s death.

How are IRA contributions affected?

As of tax year 2020, there is no longer an age limit for making contributions to traditional and Roth IRAs.

Typical Issuers Stipulations:

  • Contract owners who want to make additional contributions should follow Issuer’s procedures such as: Purchase payment windows, minimums and maximums will apply.

Further Example:

  • Contributions for the 2019 tax year that are made by April 1, 2020 are not allowed if the owner was age 70 ½ or older during 2019.

How are pension and 457 plans affected?

  • Pension and 457(b) plans may now permit in-service distributions at age 59 ½. Previously, a pension plan could not allow an in-service distribution before age 62 and a 457(b) plan could not allow an in-service distribution before age 70 ½.

What is the new distribution exception for new parents?

Contract owners may withdraw up to $5,000 of qualified funds upon the birth or adoption of a child without incurring the previous 10% penalty tax imposed by the IRS, and 403(b), 401, and 457(b) plans may allow such distributions without violating the applicable tax law distribution restrictions.

Employer 403(b) plans, 457(b) plans and 401(k) plans may be amended to add an exception to the distribution restrictions to allow such withdrawals.

How are annuitizations affected?

The SECURE Act’s limits on inherited IRA and other stretch distributions from qualified contracts effectively place a cap on the fixed period component of annuitization options for qualified contracts. The cap is 10 years or the annuitant’s life expectancy – whichever is less.

Therefore, for clients age 92 and under, the maximum fixed period is 10 years. For ages 93 and above, the fixed period will be lower and based on life expectancy. This cap applies to the following annuitization options for qualified contracts (varies by Issuer): fixed period payout, life payout with payments for at least a fixed period and Option D.

Previously, the fixed period for qualified contracts was capped at the annuitant’s life expectancy, even if it was more than 10 years. Also, for qualified contracts electing a Joint and survivor option, the option is limited to an owner and spouse, or an owner and individual who is no more than 10 years younger than the owner.


Paul M. League, QFP—Qualified Financial Planner
Paul M League—Founding Principal of League Financial & Insurance Services
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