A Non-spouse Beneficiary refers to a specific individual or entity designated to inherit assets from an Individual Retirement Account (IRA) or other retirement savings plans who is not the spouse of the account owner.
When a person sets up an IRA, they typically name a beneficiary or multiple beneficiaries to inherit the funds in the account upon their death. This allows for the transfer of the assets in a way that can bypass probate. If the beneficiary is the spouse of the account owner, they often have additional options, such as rolling the assets into their own IRA or treating the IRA as their own. Non-spouse beneficiaries do not have these same options.
The rules and options for a non-spouse beneficiary can be more complex, and they may vary depending on the type of IRA (such as a Traditional IRA, Roth IRA, etc.) and the specific plan rules. Generally, non-spouse beneficiaries may be required to withdraw the funds within a specific time frame, such as 10 years after the death of the original account holder, or take required minimum distributions based on their life expectancy.
The rules governing non-spouse beneficiaries were altered under the Setting Every Community Up for Retirement Enhancement (SECURE) Act of 2019 in the United States, which imposed some new restrictions and requirements on non-spouse beneficiaries. It’s essential for non-spouse beneficiaries to understand the rules and consult with a financial or tax professional to ensure they comply with all requirements and take advantage of any available opportunities for tax-efficient inheritance of the IRA assets.