Unpacking the Final Regulations for Inherited IRAs
August 06, 2024
Kim McCarthy
Senior Vice President and Chief Wealth Client Services Officer
Alison R. Scholle
Vice President, Wealth Management Tax Manager
Four and a half years after the SECURE Act was passed, the IRS has finally released the long-awaited, much anticipated Final Regulations. In addition to correcting a drafting error in the original legislation which set the RMD age to both 73 and 75 (spoiler alert: it is 73 for IRA owners born in 1959), the regs answer a number of lingering questions that experts have been debating about the SECURE Act, particularly with regard to inherited IRAs.
Below are “need to know” answers to the most commonly asked questions about inherited IRAs:
1. Is everyone required to take RMDs from their inherited IRA every year during the 10-year payout period, as well as taking the entire balance in year 10?
No.
2. Who is exempt from taking RMDs for years 1-9?
Any beneficiary who:
- inherited a Roth IRA; or
- inherited a traditional IRA before 1/1/2020; or
- is an Eligible Designated Beneficiary (EDB) [such as a surviving spouse]; or
- inherited an IRA where the original owner was not in payout status (e.g. not subject to RMDs when they died).
An "Eligible Designated Beneficiary" is an inherited IRA beneficiary who is:
1. The spouse or minor child of the deceased
2. Disabled or chronically ill
3. Not more than 10 years younger than the deceased
3. What happens if I am not exempt, but I have not taken annual RMDs since the SECURE Act passed?
Not a problem. The IRS has confirmed there will not be a penalty for failing to take RMDs in years 2021 – 2024, and there is no requirement to “make-up” RMDs for those years. You will be required to take an RMD each year starting in 2025.
4. What if I am not the original beneficiary (e.g. I inherited an inherited IRA)? Do the rules apply to me?
If the IRA was inherited before 2019, when the original beneficiary dies, the new 10-year rule will apply to you.
For IRAs inherited after 2019, the 10-year rule “clock” does not reset upon the death of the beneficiary, so you just assume the balance of the original beneficiary’s 10-year payout.
5. Did the regulations do anything else that I need to know about?
As you can imagine, the regulations address dozens of topics in great detail. Not everything applies to everyone, but there are clarifications about complex issues such as RMDs not satisfied in the year of death, trusts as inherited IRA beneficiaries, etc. Your team will be happy to discuss any of these more complex issues that might apply to your situation!
Washington Trust Wealth Management Can Help
Your wealth advisors at Washington Trust Wealth Management can help you take advantage of the IRS' additional extension of the penalty waiver, tailoring the timing and amount of your inherited IRA RMDs to your unique financial situation and goals.
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