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IRS Waiver of Annual RMD for Inherited Retirement Accounts
IRS Waiver of Annual RMD for Inherited Retirement Accounts
STRETCH went away (SECURE Act) for most INHERITED retirement accounts; there are important exceptions for ELIGIBLE beneficiaries that include spouses & minors. There was initial confusion for the new 10-yr Rule to empty most inherited retirement plan balances whether the annual RMDs will be still required. The IRS flip-flopped on this & now has resorted to ad-hoc annual WAIVERS. So, we now have a waiver for 2024 RMDs from inherited accounts for the 4th year. What a joke! https://www.thinkadvisor.com/2024/04/17/irs-waives-2024-rmds-for-ira-beneficiaries-under-10-year-rule/ https://www.irs.gov/pub/irs-drop/n-24-35.pdf
To be clear here (somewhat ironic choice of words), the IRS is rewarding failure to read the rules by waiving a rule for another year.
Some individuals who are owners of inherited IRAs ... [misunderstood] the new 10-year rule. ... Specifically, [they] expected that the [new] 10-year rule would operate like the [old] 5-year rule. [They though that] there would not be any RMD due for a calendar year until the last year of the 5- or 10-year period following the ... death of the eligible ... beneficiary. ...
[B]eneficiaries of individuals who died in 2020 explained that they did not take an RMD in 2021 and were unsure of whether they would be required to take an RMD in 2022. [They] asserted that ... the Treasury Department and the IRS should provide transition relief for failure to take distributions that are RMDs due in 2021 or 2022
Fair enough. To avoid penalizing beneficiaries due to initial confusion about the new rule, the IRS provided a two year period where penalties were waived.
Apparently two years weren't enough for some taxpayers. The IRS extended the waiver for 2023, and now again for 2024. As near as I can see, there was no additional rationale given beyond that used for the initial transition waiver.
Note that the same rules apply to inherited employer-sponsored plans (401(k)s, 403(b)s).
There was indeed confusion in early-2021 and there were revised versions of IRS Publication 590-B [
As you wrote in the cited link, "So, this new 590-B dated 3/25/21 makes things clear." Hence the original two year transition waiver through the end of 2022.
If the rules have been clear since 3/25/21, then ISTM that by providing additional waivers for 2023 and then 2024, all the IRS is doing is rewarding people who didn't read rules that were clear for two years or more at the time they were required to take RMDs (2023 and later).
Another mention of still another exception: there is a separate and more generous IRS RMD Table which is to be used by spouses who inherit an IRA, when the surviving spouse is at least 10+ years younger than the deceased.
Comments
Catch
Fair enough. To avoid penalizing beneficiaries due to initial confusion about the new rule, the IRS provided a two year period where penalties were waived.
Apparently two years weren't enough for some taxpayers. The IRS extended the waiver for 2023, and now again for 2024. As near as I can see, there was no additional rationale given beyond that used for the initial transition waiver.
Note that the same rules apply to inherited employer-sponsored plans (401(k)s, 403(b)s).
https://big-bang-investors.proboards.com/thread/373/irs-new-guidance-rmds-rule
Hence the original two year transition waiver through the end of 2022.
If the rules have been clear since 3/25/21, then ISTM that by providing additional waivers for 2023 and then 2024, all the IRS is doing is rewarding people who didn't read rules that were clear for two years or more at the time they were required to take RMDs (2023 and later).
Another mention of still another exception: there is a separate and more generous IRS RMD Table which is to be used by spouses who inherit an IRA, when the surviving spouse is at least 10+ years younger than the deceased.
Table II (2) through this link: (LOTS of scrolling down in order to find it!)
https://www.irs.gov/retirement-plans/plan-participant-employee/ira-required-minimum-distribution-worksheet-spouse-10-years-younger