Helpful Update for Certain IRA Inheritances

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Good news for certain IRA inheritors: the IRS has suspended enforcement of certain required minimum distributions for years 2021 and 2022. This is the latest development in regulations enacting the changes established by the passing of the SECURE Act in December 2019.

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One key provision of this act requires that most beneficiaries of an inherited IRA must withdraw the account balance by the end of the tenth year following year of death. There are exceptions but in general, most taxpayers must comply with the ten-year rule. Previous law would typically allow those distributions to stretch over a longer period using life expectancy tables. But for deaths beginning in year 2020, inherited IRAs are generally subject to a more rapid distribution requirement.

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On February 23, 2022, the IRS released new proposed regulations that incorporate all the changes brought about by the SECURE Act. There is a key clarification that has been provided by these regulations. Prior to the issuance of these regulations, it was thought that the rule was simply that the account must be emptied by the end of the tenth year following year of death. Now it seems that there must be an annual distribution. 

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The IRS recently issued Notice 2022-53 in early October which indicates that the IRS will delay enforcement of new rules for taking required annual withdrawals from some inherited retirement accounts until 2023. The relief applies to taxpayers who inherited retirement accounts in 2020 or 2021. Proposed regulations issued in February had mandated that beneficiaries had to take annual withdrawals right away instead of waiting until the end of a 10-year period to deplete their accounts.

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The new guidance doesn’t say that the annual required minimum distributions are waived, but by offering penalty relief, it essentially means that this group of taxpayers doesn’t have to take RMDs for 2021 and 2022.