On February 23, 2022, the IRS released a new proposed regulation that incorporates all the changes brought about by the SECURE Act. A key clarification that has been provided by these regulations. Previously, it was thought the rule was simply that the account must be emptied by the end of the tenth year following the year of death. Now it seems there must be an annual distribution.
The question: If I am a beneficiary of a retirement account due to a death in 2020 or later, must I take a distribution annually as part of the ten-year rule?
The answer: No. The IRS will not penalize a beneficiary for failure to take a distribution in years 2021, 2022, or 2023. However, to date, the IRS has not clarified its position regarding tentative RMDs associated with the ten-year rule for 2024 and subsequent years.
- The SECURE Act became law in December 2019 and effective Jan 1, 2020, which ushered in the ten-year rule.
- As noted above, in February 2022 the IRS released a proposed regulation that surprised many by mandating an annual RMD as a component of the ten-year rule.
October 2022: IRS issued notice 2022-53 announcing relief from penalty enforcement for years 2021 and 2022.
July 2023: IRS issued notice 2023-54 extending relief to year 2023.
What will happen next? Great question! Perhaps the proposed regulation issued in February 2022 will be amended and finalized. Time will tell.
If you inherited a retirement account after 2019, generally, you should plan to liquidate the account by the tenth year following death. This is the general rule, although a surviving spouse and other eligible beneficiaries can be exempt from the ten year-rule. In year 2024 you should plan to touch base with your investment or tax advisor to get an update regarding IRS developments that may impact possible annual RMDs.