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The IRS on Thursday issued final regulations regarding Required Minimum Distribution (RMD) requirements for those who inherit retirement accounts which were published in the Federal Register today 7/19/2024. The final regulations requires Non-Eligible Designated Beneficiaries to take RMDs starting in 2025 if the decedent had already reached their required beginning date.
The full final regulations can be read here –
https://www.federalregister.gov/documents/2024/07/19/2024-14542/required-minimum-distributions
The summary of the rule as published in the Federal Register is effective 9/17/2024 follows-
This document sets forth final regulations relating to required minimum distributions from qualified plans; section 403(b) annuity contracts, custodial accounts, and retirement income accounts; individual retirement accounts and annuities; and certain eligible deferred compensation plans. These regulations affect administrators of, and participants in, those plans; owners of individual retirement accounts and annuities; employees for whom amounts are contributed to section 403(b) annuity contracts, custodial accounts, or retirement income accounts; and beneficiaries of those plans, contracts, accounts, and annuities.
Bottom line for the final rule – for most beneficiaries (excluding the decedent’s spouse and a few other groups) who have recently inherited a traditional tax deferred account where the decedent was already obligated to take a RMD then beginning in 2025 you need to take a annual RMD as well as fully empty the inherited account, typically a traditional IRA, by 10 years after decedent died or you will get hit with a 25% tax penalty (per year) of the RMD amount that should have been distributed but wasn’t as well as the the actually IRA distribution being taxable in the year when the distribution withdraw is made.
You will be well served by talking to the plan / IRA custodian(s) to assure you are taking timely RMDs.
Taking distributions from a decedent’s IRA as a designated beneficiary can be daunting if your goal is to take that distribution in the form of an inherited IRA rather than in cash. The paperwork and the process is almost overwhelming, especially if you want to move the IRA to a different custodial firm. An example would be a beneficiary entitled to 1/2 their parent’s IRA at Templeton Franklin who wants to take that value as an inherited IRA – but wants to put that inherited IRA in an account at Vanguard. Be careful when you make calls: The vocabulary for this process is different than for a “rollover.” That’s the common term. But because the rules for inherited IRAs are different, you need to be sure the service rep you talk to does not default to assuming you are doing a rollover – when what you are actually wanting is a transfer to create an “inherited IRA” that will meet IRS requirements.
Kitces article on the new rules. A long read on a complex topic. Mike Piper posted a link to this article in his recent newsletter.
https://www.kitces.com/blog/secure-act-2-0-irs-regulations-rmd-required-minimum-distributions-10-year-rule-eligible-designated-beneficiary-see-through-conduit-trust/
William, Thank you for this information. With your knowledge, would you know the answer to the following question for inherited tIRA RMD rules? BACKGROUND: My wife’s mother passed 2.5 years ago, so her children all received an inherited tIRA. My wife’s brother just passed recently. He was in his 50’s, well below the age of required beginning date (RBD), and he did not take any distributions in the 2.5 years since he had the inherited IRA. (The mother had taken her RMD in the year of her passing). Now the bother’s inherited IRA is to be passed to the next generation, who are all far below the age of RBD. QUESTION: for the next generation, does the 10-year clock start again with the date of the brother’s passing? Or do they have 10 years from the date of their grandmother’s passing, 2.5 years ago, so they only have 7.5 years to empty the account? Thanks.
Your background information is such that I might be doing you a disservice by giving you a definitive yes or no answer based on my understanding of the facts and rules.
I suggest you talk to the IRA custodian. The actions of the brother on naming or failing to name beneficiaries would likely impact the appropriate answer. The custodian may need a death certificate or additional documents before they are willing to speak to a family representative about the details of the IRA.
I also recommend reading page 8 & 9 of the IRS 2023 Pub 590-B. In part it says –
Death of a beneficiary. In general, the beneficiaries of a deceased beneficiary must continue to take the required minimum distributions after the deceased beneficiary’s death.
I read this to mean the account must be emptied based on the mother’s DOD.
The ne