New Guidance From the IRS May Impact Your End-of-Year Plan
If you have recently inherited an IRA, new guidance from the IRS may impact how you will be required to withdraw from the account. The SECURE Act, passed in 2019, governs the parameters under which required minimum distributions (RMDs) are to be taken for retirement accounts inherited from 2020 and on. This Act is currently being reinterpreted by the IRS, potentially resulting in more stringent withdrawal mandates for Traditional IRAs. Details surrounding the Act, along with revised guidance from the IRS, are as follows:
- Non-spousal beneficiaries of Traditional IRAs (who inherited accounts from decedents passing on or after 1/1/2020) were to fully deplete their account(s) within 10 years. However, the original guidance from the IRS did not indicate that RMDs were to be required during that 10-year period.
- New guidance issued by the IRS in the fall of 2022 indicates that RMDs may in fact be applicable during the 10-year withdrawal period (challenging previously understood guidelines), however, no official rules have been published around how these RMDs should be calculated.
- Clarification from the IRS is pending, anticipated at the beginning of 2023. Regardless, the IRS has already confirmed that, should annual RMDs ultimately be required under the SECURE Act for Inherited IRAs, no penalties will be assessed for RMDs not taken prior to 2023.
- These new RMD guidelines are not likely to impact Roth IRAs, only Traditional IRAs inherited by non-spouse beneficiaries where the decedent was previously taking RMDs*.
As we wait for further clarification from the IRS, please know that your CAISSA Team is here to talk with you further should you have additional questions. Consider consulting with your tax advisor as well.
*The 10-year withdrawal period outlined under the SECURE Act, and any pending RMDs that may be applicable during that term, apply only to “eligible beneficiaries.” Eligible beneficiaries are defined as anyone other than a surviving spouse, a disabled individual, a chronically ill individual, a minor child, or an individual who is not more than 10 years younger than the account owner.