Don't Let RMD Relief Blind IRA Beneficiaries to the Big Picture
In previous notices, the IRS also excused these RMDs for 2021, 2022 and 2023 for account owners who died in 2020, but after their required beginning date, as well as for 2022 and 2023 for those who died in 2021, and in 2023 for those who died in 2022.
Under the new relief, beneficiaries of inherited IRAs, 401(k)s and 403(b)s will not be subject to any mandatory distribution requirements until at least 2025, so they also will not be subject to the penalty tax for missed RMDs if they elect to make no withdrawals during the relief period. Qualified plans will also not risk disqualification by failing to make one of these distributions.
The notice applies only to beneficiaries of inherited IRAs. Taxpayers who are subject to the lifetime RMD rules are still required to take distributions from their own accounts during their lifetimes.
Clients and Their RMD Obligations
Notice 2024-35 indicates that the IRS may be ready to finalize the proposed regulations in the coming months. The agency specifically states that final regulations should apply for tax years beginning on or after Jan. 1, 2025. That means that beneficiaries of inherited accounts should prepare for enforcement of their post-Secure Act RMD obligations.
Although RMDs for inherited IRA beneficiaries have been waived each year since 2020, account beneficiaries subject to the 10-year rule may wish to consider taking annual RMDs anyway. Income tax rates are historically low, and the current ordinary income rates are set to increase after 2025 absent congressional action to extend the 2017 tax cuts.
The IRS has not indicated whether it will extend the 10-year period to account for the years when RMD waivers were in effect. If it doesn’t, the beneficiary will be required to take larger RMDs to empty the account over a shorter period of time, meaning that the beneficiary could face a larger tax bill once the IRS begins enforcing RMD obligations.
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