IRS Finalizes Guidelines for RMDs from Qualified Retirement Plans

In late July the IRS issued long awaited guidelines on inherited IRAs that eliminated “stretching out” required minimum distributions for most inheritors to a maximum of 10 years. Prior to 2020 and the passing of the initial SECURE act, anyone who inherited an IRA could extend RMDs for decades.

These new guidelines provide clearer direction amid the confusion that has perplexed both advisors and beneficiaries since the passage of the SECURE Act in 2019 and the SECURE 2.0 Act in 2022, which introduced new rules for the minimum age for RMDs, 401(k) catch-up contributions, automatic enrollment, emergency withdrawals, 529 Plan Roth rollovers, and more.

These changes to retirement accounts are numerous and complex. It is essential that you plan carefully and seek advice from your tax advisor to understand the implications on your financial plans while you are alive and your plans for your inheritors.

Effective Date: Sept. 17, 2024

“Qualified Plans” includes:

• section 403(b) annuity contracts, custodial accounts, and retirement income accounts;
• individual retirement accounts and annuities; and
• certain eligible deferred compensation plans.

Who is affected:

• Administrators of, and participants in, those plans;
• Owners of individual retirement accounts and annuities;
• Employees for whom amounts are contributed to section 403(b) annuity contracts, custodial accounts, or retirement income accounts; and
• Beneficiaries of those plans, contracts, accounts, and annuities.

This ruling applies to the calendar year, taxable year, and distributions starting on or after Jan. 1, 2025.

Summary:

• Those who inherit retirement accounts have 10 years to spend down the funds.
• The amount of the RMD can vary depending on the age of the beneficiary, their relationship to the deceased, and the total value of the inherited account.
• This ruling applies to accounts inherited on or after Jan. 1, 2020.
• It does not apply to eligible designated beneficiaries (EDBs). EDBs are spouses and minor children, disabled or chronically ill beneficiaries, and anyone not more than 10 years younger than the deceased.
• “Not more than 10 years younger than the deceased” is a broad category, but the rule is time-stamped based on the date age of the deceased when they died.
• Remember that withdrawals are treated as taxable income, so it’s advisable to consult your accountant and financial advisor to plan the dates and amounts of withdrawals.
• Persons who do not take the required minimum distribution face a 25% penalty on deficient amounts.

For additional details, read the IRS ruling here.