New RMD Election for Inherited Retirement Plans: A Guide for Surviving Spouses 

Required Minimum Distributions (RMDs) on inherited retirement plans have become much more complicated with the passage of the SECURE Act and SECURE 2.0 Act, not that they were simple to begin with. Starting in 2024, there is a new option for surviving spouses, known as the “spousal election,” which is outlined in section 327 of SECURE 2.0.¹

What is the spousal election?

If you are the sole beneficiary of your deceased spouse’s retirement plan, you historically had two options for managing the account:

1. Spousal rollover. This allowed you to transfer your spouse’s retirement account into your own. This option simplified account management by avoiding the complexities of tracking the inherited account’s RMDs.

2. Inherited retirement plan. You could keep the account as an inherited retirement plan and calculate RMDs based on one of the following four methods, depending on whether your spouse had started taking RMDs before their death:

• If your spouse passed away before reaching RMD age*:
  • You could start taking distributions at the time your spouse would have reached RMD age, using your life expectancy to calculate the amount each year.
  • Alternately, you could withdraw the entire account within 10 years of your spouse’s death.
• If your spouse passed away at or after reaching RMD age:
  • You could start taking distributions the year after your spouse’s death, using your life expectancy to calculate the amount each year.
  • Alternately, you could start distributions the year after death based on your spouse’s life expectancy and reduce the factor by one each year.

If all this sounds complicated to you, you’re not alone. However, Congress felt compelled to offer another path should the surviving spouse wish to make the election. The language in the SECURE 2.0 Act simply states that the regulations “shall treat the surviving spouse as if the surviving spouse were the employee.”²

Who can use the spousal election?

According to the proposed regulations, the election is only permitted if the surviving spouse is the sole beneficiary on inherited defined contribution plans, not IRAs, “if the first year for which annual required minimum distributions to the surviving spouse must be made is 2024 or later.”

Example 1: Tory’s husband passed away in 2020 at the age of 65, leaving her as the owner of his employer-sponsored 401k plan. According to the rules stated above, she does not have to start annual distributions until her husband would have reached his RMD age (2028). Therefore, Tory can make the spousal election.

Example 2: Sally’s husband passed away in 2020 at the age of 76 leaving her as the owner of his employer-sponsored 401k plan. According to the rules stated above, Sally should have started annual distributions in 2021 making her ineligible for the spousal election.

How do the new spousal election rules work?

A plain English reading of the statute would lead the reader to believe the surviving spouse will take RMDs as if they were the employee. In other words, they start when the decedent would have started, and the amount is calculated on that decedent’s life. Unfortunately, only the first part of that is true.

“The date on which the distributions are required to begin…shall not be earlier than the date on which the employee would have attained” RMD age.³ The proposed regulations state the RMDs “for each distribution calendar year…would be determined using the Uniform Life Table for the surviving spouse’s age.”

In essence, under this new election, the surviving spouse delays taking RMDs until the decedent spouse would have reached their RMD age, but then starts distributions according to their own age at that time.

Example 3: Tammy dies at age 63, leaving her 401(k) to her husband Josh, who is 69. According to the spousal election, Josh can wait 10 years before starting RMDs (until Tammy would have turned 73). However, when he does start, the first RMD amount will be based on his age (79 at that time), not Tammy’s age. 

The good news is the surviving spouse is not subject to the 10% penalty on early distributions under this rule. However, any beneficiary who inherits the account after the surviving spouse’s death must withdraw all funds within 10 years, rather than stretching the distributions over their lifetime.

How to make the election

The term “election” might suggest a choice, but sometimes it happens automatically. According to the IRS, if the deceased spouse dies before reaching their RMD age and the surviving spouse is the sole beneficiary, the spousal election is automatically applied. If the deceased spouse dies after reaching the RMD age, the plan may default to applying the spousal election rules.

Who benefits from the spousal election?

The spousal election can be beneficial if there is a significant age gap between spouses, and the younger spouse is more likely to pass away first. The older surviving spouse can defer taking distributions until the younger spouse would have reached RMD age, potentially allowing for greater tax deferral. However, the distributions will be larger once they begin, and future beneficiaries lose the ability to stretch the distributions over their lifetime.

In most cases where the older spouse passes first, a spousal rollover may be the best option, allowing the younger spouse to delay distributions and preserve the potential for stretching distributions for future beneficiaries.

For more information on RMDs, browse our insights or contact your wealth advisor. If you are not a Mercer Advisors client and want to learn more, let’s talk.

¹ “The Federal Register.” Department of the Treasury / Internal Revenue Service, 19 July 2024.

² IRC §401(a)(9)(B)(iv)(I)

³ IRC §401(a)(9)(B)(iv)(II)

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