IRS (Again!) Waives RMDs for Certain Inherited Retirement Accounts

The IRS recently declared that it won't enforce required minimum distributions from inherited retirement accounts for certain beneficiaries.

Before 2020, the beneficiary of an inherited retirement account had the flexibility to withdraw funds over his remaining life expectancy. However, the landscape shifted in 2020 after the passage of the SECURE Act, which stipulated that a designated beneficiaries of an inherited retirement account must deplete the entire balance within 10 years of the original account owner's passing.

A “designated beneficiary” is an individual who is (i) not the surviving spouse or minor child of the deceased account owner, (ii) disabled or chronically ill, or (iii) not more than 10 years younger than the deceased account owner.

The IRS further complicated matters with proposed regulations mandating that a designated beneficiary must take annual distributions during the 10-year withdrawal period if the deceased account owner was subject to required minimum rules at death. Subsequently, the IRS temporarily waived the RMD requirement pending final rule issuance.

On April 16, 2024, the IRS extended the waiver of the RMD requirement to cover 2024. (The IRS has yet to issue final rules.) Penalties won't be imposed for missed RMDs from inherited accounts in 2024. Nevertheless, a designated beneficiary must still withdraw the entire balance by the end of the initial 10-year liquidation period.

Strategically, a designated beneficiary of a non-Roth type retirement account shouldn’t postpone distributions, required or voluntary, until the end of the 10-year liquidation period. Doing so might force the beneficiary of an inherited retirement account with a substantial balance to take much larger distributions, thereby increasing taxes imposed obligations on those withdrawals.

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