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By Staff Reporters

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The Internal Revenue Service is allowing people who inherited an individual retirement account after 2019 to skip a required minimum distribution [RMD] this year, but most still must empty the account within 10 years. The IRS issued the new guidance last week.

There has been confusion surrounding the rules for inherited IRAs ever since the Secure Act of 2019 eliminated the so-called “stretch IRA” for most non-spouse beneficiaries. The old rules had allowed beneficiaries of inherited IRAs to stretch their required minimum distributions over their own lifetimes, permitting decades of tax-free or tax-deferred growth in some cases.

Under the Secure Act of 2019, most non-spouse beneficiaries must now empty their inherited IRA by the end of the 10th year following the original owner’s death. When the law was first passed, experts interpreted it to mean that all the money could be withdrawn in year 10 if so desired, said Ed Slott, CPA and founder of IRAHelp.com 

Yet in early 2022, the IRS proposed stricter rules that would apply to someone who inherited an IRA from a person who had already begun taking RMDs; in that case, the recipient must continue taking distributions on an annual schedule. In other words, if the RMD tap had already been turned on, Slott said, it couldn’t be turned off following the original owner’s death, and beneficiaries had to keep withdrawing every year and paying income tax on the amount withdrawn.

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Filed under: "Ask-an-Advisor", Accounting, Experts Invited, Retirement and Benefits, Taxation | Tagged: Ed Slott, Internal revenue service, IRA, IRS, RMD, SECURE Act, tax | Leave a comment »