On July 18, 2024, the IRS issued final required minimum distribution (RMD) regulations under the 2020 SECURE Act. The newly issued regulations:
- Fine-tune existing rules for trust beneficiaries and aggregation of RMDs.
- Eliminate burdensome rules for certain spouse beneficiaries documentation requirements for certain IRA beneficiaries.
However, the IRS is standing firm and maintaining the requirement that some beneficiaries must take annual RMDs during the SECURE Act’s 10-year payout period.
When the SECURE Act became law in 2020, most non-spouse beneficiaries lost the ability to stretch payments over their life expectancy. Instead, these beneficiaries became subject to a 10-year payout rule. In the wake of the SECURE Act, the IRS proposed regulations took the position that if the account holder died on or after his required beginning date for taking RMDs, then annual RMD payments must continue to the beneficiary during the 10-year period.
In the newly released final regulations, annual RMDs are required. They must be taken starting in 2025. However, the IRS will not impose penalties for annual RMDs that were not taken for years before 2025.
Example: Bob inherited a traditional IRA from his father George, who died at age 85 in 2020. Under the SECURE Act, Bob is subject to the 10-year rule. He must empty the inherited IRA account by December 31, 2030. The new IRS final regulations also require him to take annual RMDs based on his life expectancy in years one through nine of the 10-year payout period. Due to the IRS waiver of the penalties for missed RMDs in years 2021, 2022, 2023, and 2024, Bob does not need to take RMDs for those years. However, beginning in 2025 he must take an annual RMD for years 2025-2029 from the inherited IRA.