Trust Perspectives: IRS Issues Ruling on 10-Year RMD Rule for Inherited IRAs

On October 7, the IRS clarified the most confusing issue of the proposed Secure Act rules regarding Required Minimum Distribution regulations which were issued last February.

The confusion regarded beneficiaries who inherited an IRA in 2020 or later and were subject to the 10-year rule, where the entire inherited IRA balance would have to be withdrawn by the end of the 10th year after death.  In the earlier, proposed regulations, the IRS said “that if these beneficiaries inherited from someone who was already taking RMDs, then not only are they subject to the 10-year rule but would also be required to take RMDs for years 1-9 after death”.  Until the October 7 announcement (Notice 2022-53), it was not clear whether the IRS would require the inheritor to subsequently take an RMD for 2020 and 2021, if they had not.  In its October 7 Notice, the Treasury Department and IRS indicated that the new RMD rules, when finalized, will apply no earlier than the 2023 distribution year.  Thus, if no distributions were taken in 2020 – 2022, a “make-up” will not be required nor subject to the 50% penalty for not taking a RMD.

WoodTrust will be monitoring the outcome of this ruling and will be communicating with all IRA beneficiaries that will be affected.