The IRS, RMDs and IRAs—Here’s the Latest - Adviser Investments

The IRS, RMDs and IRAs—Here’s the Latest

October 17, 2022

Just when you thought you had it all figured out, the IRS changed things on RMDs for IRAs.

Before the SECURE Act of 2019, non-spouse heirs could stretch required minimum distributions (RMDs) on inherited IRAs out over their lifetime. Now, inherited IRA assets must be distributed to beneficiaries at ordinary income rates within 10 years of the original owner’s passing. And if a trust is the beneficiary, the tax rate is even higher. (One solution: Keep the trust as a beneficiary and convert the IRA to a Roth IRA—future distributions are then tax-free.)

Then the IRS threw an additional monkey wrench into the mess: If RMDs from an IRA account have already begun, heirs will need to continue taking them in years one through nine based on the survivor’s life expectancy (as determined by the IRS’ Single Life Expectancy table). And the account must still be emptied by year 10.     

Now the new news. Earlier this month, the IRS released guidance indicating it will delay penalizing taxpayers for failing to take distributions in 2021 and 2022. The upshot: Be prepared to take an RMD before the end of 2023 in order to avoid a penalty. 

Again, this only applies to folks who inherited an IRA after the SECURE Act was passed at the end of 2019, and it only applies if the original account owner died after their required beginning date passed (meaning RMDs had already begun). If the deceased had not begun RMDs, a non-eligible designated beneficiary just has to make sure the account is empty by year 10. They don’t have to do anything in years one to nine. 

The 10-year rule does not apply to eligible designated beneficiaries (EDBs)—surviving spouses, children under 21 years old, disabled or chronically ill beneficiaries, or those within 10 years of age of the decedent. For EDBs, it’s as though the SECURE Act was never passed. 

Questions about how the IRS has changed RMDs for IRAs? Call us—we want to help. 


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