Starting in 2025, Many taxpayers must take annual distributions for IRAs and other plans.

 

Effective in 2020, The Secure Act impacted beneficiaries of IRAs and other employer plans. Previously, beneficiaries could stretch out the distributions based on life expectancy.  Now, for most people who inherit these accounts, the balance must be withdrawn by the tenth year after year of death.​

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Most non-spouse beneficiaries are stuck with shortened required minimum distribution (RMD) period. We are referring to adult beneficiaries of the IRA or qualified plan owner who are not disabled or chronically ill.  The money must be paid out under the“10-year rule”.

 

What’s new:

For years 2021-2024 those subject to the 10-year rule, were not required to take an annual minimum distribution. Due to all the confusion its interpretation caused, the IRS waived RMDs during the 10-year period for the years 2021, 2022, 2023, and 2024. In 2024, the Department of the Treasury issued final regulations in which make it clear that effective in year 2025, the 10-year rule and annual RMDs apply.

 

Example: Patricia inherited a traditional IRA from her mother who died at age 73 in 2020. Under the SECURE Act, Patricia is subject to the 10-year rule. She must empty the inherited IRA account by December 31, 2030. The new IRS regulations also require her to take annual RMDs based on her life expectancy in years one through nine of the 10-year period. The IRS waived the penalties for missed RMDs in years 2021, 2022, 2023, and 2024 so Patricia  does not need to take RMDs for those years. However, beginning in 2025 she must take an annual RMD for years 2025-2029 from the inherited IRA and be empty by 2030.