The IRS has once again decided to delay certain required minimum distribution (RMD) rules, offering taxpayers relief from confusing regulations surrounding RMDs for inherited IRAs. This recent change brings important implications for beneficiaries who inherited IRAs.
In recent years, legislative changes have significantly altered retirement plan rules. For instance, the SECURE Act of 2019 eliminated the ability for most beneficiaries to stretch distributions over their lifetimes. If you are a beneficiary of an inherited IRA and you are not the spouse of the account owner, new rules apply. As of January 1, 2020, you must withdraw all funds from the account within ten years of the account owner’s death. This has raised concerns about annual RMDs for beneficiaries who were not aware of this requirement.
Additionally, the SECURE 2.0 Act, passed last year, has raised the RMD age to 73 by 2024 and aims to increase it to 75 in the future. These changes confused many account holders and inherited IRA beneficiaries, leaving them uncertain when they needed to take RMDs. The IRS has waived penalties for failing to take Required Minimum Distributions (RMDs) for specific Inherited Retirement Accounts (IRAs) in 2020 and 2021.
Previously, RMD penalties were as high as 50% of the required amount, but due to the SECURE 2.0 Act, the penalty was reduced to 25%, with the possibility of going as low as 10%.
Now, in a recent announcement, the IRS has delayed the final rules governing inherited IRA RMDs until 2024. Furthermore, the agency has extended the 60-day rollover period for specific plan distributions until September 30, 2024.
What does this rule delay mean for beneficiaries of inherited IRAs? It grants them more time to adjust to distribution requirements. The IRS will waive penalties for missed RMDs in 2024 from IRAs inherited in 2024, provided the deceased owner was already subject to RMDs. Alongside the previous relief, penalties are waived for missed RMDs from specific IRAs inherited in 2020, 2021, and 2024.
The 60-day relief from the IRS allows more time to roll over distributions from earlier this year that were mistakenly treated as RMDs. For instance, if you were born in 1951 and received or will receive a distribution this year before July 31, 2024, you have an extension to roll over those distributions.
It’s important to note that the rules for inherited IRAs remain complex and can vary based on factors such as account type, the original account owner’s age and date of passing, and the beneficiary’s status (designated vs. non-designated, age, non-spouse, etc.). Despite the complexity, inherited IRAs can offer benefits like tax-free earnings and growth, and proper adherence to IRS rules can preserve wealth transfer from the original account owner to beneficiaries.
It’s important to keep in mind that the timing and income of Required Minimum Distributions (RMDs) from your IRA can have an impact on your tax situation. To better understand how the recent delay in RMDs may affect you, it’s recommended to consult with a trustworthy financial or tax advisor for advice.