Do I Qualify as an Eligible Designated Beneficiary under the SECURE Act?

Written by: Carrell Blanton Ferris

Posted on: October 29, 2020

Eligible Designated Beneficiary sign

Who is an “eligible designated beneficiary” of your retirement account and why does it matter?

An eligible designated beneficiary (EDB) is a person recognized in at least one of five unique classifications under the Setting Every Community Up for Retirement Enhancement (SECURE) Act. The SECURE Act was passed in December of 2019 and effects all inherited retirements accounts as of the first of this year.

Investopedia’s recent article entitled “Eligible Designated Beneficiary” explains EDBs get special treatment and have greater flexibility to withdraw funds from their inherited accounts than other beneficiaries. In most instances an EDB must withdraw the balance from the inherited account over the beneficiary’s life expectancy. There are some limited exceptions to this rule regarding spouses and minor children of the owner, as you will see below. Other classifications of beneficiaries are subject to different rules.

Three Beneficiary Classifications Recognized Under the SECURE Act

Under the SECURE Act, there are now three types of beneficiaries: Eligible Designated Beneficiaries, Designated Beneficiaries (DBs), and Not Designated Beneficiaries (NDBs). Determining which kind of beneficiary you have can be tricky. It is based on the beneficiary’s connection to the original account owner, the beneficiary’s age, and the beneficiary’s status as either an individual or a non-person entity.

Naming a Trust as the Beneficiary of a Retirement Account

If you plan to use a revocable living trust based estate plan and you want to leave your retirement accounts to your beneficiaries through the trust, it is absolutely critical that you speak with an experienced estate planning attorney. Generally speaking, EDBs and DBs are only individuals. Trusts are considered NDBs. EDBs and DBs have what is generally considered more favorable tax treatment than NDBs.  For instance, NDBs must withdraw the funds from the retirement account either within five years, or they must take it out over the owner’s original payout period—which option applies will depend on the age of the decedent. A designated beneficiary, on the other hand, would be subject to a ten-year withdrawal requirement and an eligible designated beneficiary would have an even longer withdraw period, as you will see detailed below.

As a related Investopedia’s article entitled “Not Designated Beneficiary” explains, you can draft a trust in such a way as to have it qualify as a “see through” trust under the Code. In the case of see through trusts, the trust beneficiaries, rather than the trust itself, are used to determine the classification of the beneficiary of the retirement account. Thus, a well-drafted trust can still be the beneficiary of a retirement account, providing asset protection for the trust beneficiary, and receive the more favorable distribution schedule for a designated beneficiary or an eligible designed beneficiary.

The five categories of EDBs.

Owner’s surviving spouse. Surviving spouses get special treatment, which lets them step into the shoes of the owner and withdraw the balance from the IRA over the original owner’s life expectancy. As another option, they can roll an inherited IRA into their own IRA and take withdrawals at the point when they would normally take their own required minimum distributions (RMDs).

Owner’s minor child. A deceased retirement account owner’s minor child who has not attained 18 years of age can make withdrawals from an inherited retirement account using their own life expectancy. However, when he or she turns 18, the 10-year rule for designated beneficiaries (who are not EDBs) applies. At that point, the child would have until December 31 of the 10th year after his or her 18th birthday to withdraw all funds from the inherited retirement account—the child can get an extension up until age 26 for the start of the 10-year rule, if he or she is pursuing a specified course of education.

An individual who is disabled. The tax code says that an individual is considered to be disabled if he or she is “unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or to be of long continued and indefinite duration.” A disabled person who inherits a retirement account can use his or her own life expectancy to calculate RMDs.

An individual who is chronically ill. A chronically ill individual who inherits a retirement account can also use his or her own life expectancy to determine the RMDs. The tax code states that “the term ‘chronically ill individual’ means any individual who has been certified by a licensed healthcare practitioner as—

  • being unable to perform (without substantial assistance from another individual) at least two activities of daily living for a period of at least 90 days, due to a loss of functional capacity,
  • having a level of disability similar (as determined under regulations prescribed by the Secretary in consultation with the Secretary of Health and Human Services) to the level of disability described in clause (i), or
  • requiring substantial supervision to protect such individual from threats to health and safety due to severe cognitive impairment.”

Any other person who is less than 10 years younger than the decedent. This is a catch-all that includes certain friends and siblings (depending on age), who are identified as beneficiaries of a retirement account. A person in this category who inherits a retirement account is permitted to use their own life expectancy to calculate RMDs.


Investopedia (June 25, 2020) “Eligible Designated Beneficiary”

Investopedia (June 23, 2020) “Not Designated Beneficiary”

If you found this post interesting, perhaps you’ll enjoy the following article on the proposed changes to Inherited IRA stretch rules.

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