Contributed by: Jeanette LoPiccolo, CFP®
**The IRS has waived the 50% penalty for beneficiaries subject to the 10-year rule under the SECURE Act who have not taken 2021 or 2022 required minimum distributions (RMDs) from an inherited IRA. Learn more HERE.
We have discussed the SECURE Act of 2019 in several blogs, but one of the details of the SECURE Act that many of us call the “10-year rule” may be changing slightly.
This blog discusses the impact on some Beneficiary IRA accounts, also called Inherited IRA accounts. It does not include beneficiary Roth accounts.
In Feb 2022, the IRS released new proposed regulations (REG-105954-20). One of the surprises in this document was new guidance regarding the “10-year rule” for beneficiary IRA owners. The IRS requires that once IRA required minimum distributions begin, they should not be stopped. What does that mean? If the original IRA owner was over 72, they were subject to annual required minimum distributions (RMDs). When the beneficiary inherits an IRA subject to RMDs, those RMDs will need to continue.
You may think, “I was told that the 10-year rule applies now”. But this refers to the category of eligible designated beneficiaries who are required to withdraw the inherited IRA funds by Dec 31 of the 10th anniversary of the original owner’s death. The “RMD” was understood to be the final withdrawal in the 10th year. For example, if Jane died in 2020 at age 75 and named her son Joe, age 40, as the sole beneficiary, Joe would have to withdraw all of the funds by Dec 31, 2030. For some beneficiaries, RMDs will be due annually, and the entire account must be withdrawn by the end of the 10th year.
If you have read this far, you already understand that this topic is complicated. While the proposed legislation is not enacted until it becomes law, proposed regulations are effective now. Therefore, we will notify our impacted clients of the potential RMD amount for their accounts. We also suggest that our clients wait until November to take action. Why wait? We may receive further updates from the IRS later this year.
We continuously monitor, discuss, and review these changes with clients and as a firm. If you have any questions about how the rule could affect you or your family, we are always here to help!
Jeanette LoPiccolo, CFP® is an Associate Financial Planner at Center for Financial Planning, Inc.® She is a 2018 Raymond James Outstanding Branch Professional, one of three recognized nationwide.
The RJFS Outstanding Branch Professional Award is designed to recognize support professionals in RJFS branches who contribute to the success of their advisors and teams. Each year, three winners are selected and recognized during this year's National Conference for Professional Development. To be considered for this award, Branch Professionals must have been affiliated with Raymond James for at least one year and could not have won the award in the past.
The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Please note, changes in tax laws may occur at any time and could have a substantial impact upon each person's situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion.