The IRS recently issued final regulations which clarify the rules for required minimum distributions on IRAs and other retirement accounts subject to the “ten-year rule”. Ancora’s Estate & Wealth Planning team provides a summary and important takeaways below and encourages clients to contact us to discuss in further detail.
Clarification of the Ten-Year Rule
These regulations were issued on July 19, 2024 and become effective on January 1, 2025. Penalties are waived for missed RMDs in years 2021 through 2024. In addition, the IRS will not require beneficiaries to make up for missed RMDs during those years, though beneficiaries are required to complete the decedent’s final RMD for the year of death if it had not been fulfilled.
If a decedent was already taking RMDs or had reached their required beginning date (RBD) in the year of death, then beneficiaries must take annual RMDs during the ten-year window. Calculations are based on the beneficiary’s life expectancy. Conversely, if the decedent had not yet reached their RBD, then there are no RMDs during the ten-year window. The account would simply need to be emptied by the end of the tenth year. This means there are no RMDs during the ten-year window for inherited Roth IRAs that were not subject to RMDs prior to death.
Spouses in particular are granted additional options for inherited IRAs, including in some cases the option to delay RMDs until the decedent’s RBD or the option to treat the inherited IRA as their own. Recall the ten-year rule does not apply to the following eligible designated beneficiaries:
- Decedent’s surviving spouse
- Decedent’s minor child
- A disabled or chronically ill individually
- Any individual not more than ten years younger than the decedent
Important Note: Even if there is no required minimum distribution during a given year within the ten-year window, this does not necessarily mean that a distribution should not be taken. Please consult with your financial planner if you have questions about whether a beneficiary should consider taking a distribution from an inherited account.
Other IRS Clarifications
If multiple beneficiaries need to fulfill the decedent’s year-of-death RMD, they may split the distribution amongst themselves however they wish, as long as they collectively take the full amount. Depending on the beneficiaries’ individual situations, this can create a planning opportunity.
Roth 401(k) accounts are no longer subject to mandated RMDs beginning in 2024.
An RMD must be taken by Dec. 31st of the year it is due, though the initial RMD the year you reach applicable age can be taken as late as April 1st of the following year, which is the required beginning date or RBD. Note the IRS confirmed the RBD for those born in 1959 is April 1st of the year after they turn 73 years old. There had been ambiguity around this question previously. The RBD for anyone born January 1, 1960 or later is now April 1st of the year after they turn 75.
Conclusion
These updated IRS rules provide more clarity around post-SECURE Act inherited IRAs and, importantly, also create opportunities for some flexible planning strategies in certain situations. Speak with your Ancora Wealth Advisor to learn more and connect with our Estate & Wealth Planning team.