May 16, 2024

In April, the Internal Revenue Service waived penalties for beneficiaries of individual retirement accounts subject to required minimum distributions under the 10-year rule that do not take distributions in 2024. This extends the relief period for RMDs that would have had to been taken from 2020 through 2023 to include the 2024 tax year.

The 10-year rule was introduced in 2019 when the SECURE Act eliminated the “stretch-IRA” which had allowed most inheritors of IRAs to take distributions over their lifetimes, instead requiring most non-spouse inheritors of IRAs to empty the retirement account within ten years of the original account owner’s death.

Because the timing of when the funds are taken out can have significant tax implications, an important question since the rule’s introduction was whether inheritors needed to take annual withdrawals or if they could wait until the tenth year to empty the account. In February 2022, the IRS proposed (but did not finalize) regulations requiring beneficiaries to make annual withdrawals during the 10-year window if the original owner was already taking RMDs. Conversely, under the drafted rules, withdrawals are not required in years one through nine if the original IRA owner had not started taking distributions before death, but the account must still be completely emptied within ten years.

"While we have clarity that these proposed rules will be ignored for the 2024 tax year, it may still make sense to take a distribution."

While we have clarity that these proposed rules will be ignored for the 2024 tax year, it may still make sense to take a distribution. Especially for larger IRAs, or inheritors with rising incomes, waiting too long to start emptying an inherited IRA could put you in a different tax bracket when you start taking distributions. Even if taking an RMD doesn’t change your tax bracket, you may want to take advantage of current low tax brackets, which are scheduled to increase in 2026.

Please talk with your Investment Counselor to consider the withdrawal strategy that makes the most sense for you.

Download Article: Still Waiting for Final RMD2024 RMD Relief for IRA Beneficiaries Subject to 10-Year Rule

The above information is for educational purposes and should not be considered a recommendation or investment advice. Investing in securities can result in loss of capital. Past performance is no guarantee of future performance.

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