Just one month ago, Sarah Brenner explains in the Slott Report, the IRS made one thing really clear:The tax authority is not backing down on the requirement that some beneficiaries must take annual Required Minimum Distributions out of the IRAs they inherited.
Before the SECURE Act came into being, when an IRA owner had begun taking RMDs and then died, the beneficiary was able to “stretch” payments over his or her own life expectancy. While SECURE took away that “stretch” option, many believed the “at-least-as rapidly-as the original-owner” requirement was no longer in play.That understanding has turned out to be wrong, the IRS has now made clear.
However, conceding that there has been a lot of confusion on the matter, the IRS is waiving penalties for RMDs not taken in years 2021, 2022, 2023, and 2024. From 2025 and on, however, a “we really mean it” goes into effect.
While at Geyer Law, we offer no tax advice, instead working in cooperation with clients’ tax advisors, the fact is that for many clients, IRA accounts represent a significant portion of their financial assets. With retirement and estate planning so intertwined, we often discuss with clients the different options when setting up beneficiaries on their IRAs in coordination with their overall estate planning goals.
In naming IRA beneficiaries, an important consideration is the tax ramifications for heirs who will either need to make withdrawals – and pay tax on those withdrawals – over a maximum of ten years, or (where RMDs had already begun) over an even shorter period of time.
It is to be noted: that exceptions to these inherited IRA rules include spouses, minor children, disabled or chronically ill heirs, and beneficiaries not more than 10 years younger than the original IRA owner.
Now that the IRS has “cleared up the confusion” about withdrawals from inherited IRAs, it’s a good idea for both IRA owners and IRA “heirs” to review their options. After all, beginning next year, required is going to really mean required!
by Cara M. Chittenden, Attorney with Rebecca W. Geyer & Associates
