New IRS Regulations for Annual RMDs
The Internal Revenue Service (IRS) has issued a long-awaited final regulation ending confusion encompassing inherited IRA annual required minimum distributions (RMDs) for non-spousal beneficiaries. The Secure Act of 2019 created confusion about the ten-year window for inherited IRAs which must be completely withdrawn. Due to the confusion, the IRS has granted temporary relief since the new rule took effect in 2020. Non-spousal beneficiaries of inherited IRAs have not been penalized for omitting annual distributions withdrawals since the new rules took effect as the IRS considered adding requested clarification. The new guidance, effective in 2025, clarifies a key question confusing many advisors, tax professionals, and beneficiaries since the passage of the SECURE Act five years ago.
The question has been whether non-spousal beneficiaries were required to take annual RMDs during the ten years following the original account holder’s death, or if they could wait and withdraw the entire amount at the end of the decade.
There are different rules for spousal beneficiaries. However, the new guidance is specifically for non-spousal beneficiaries. The new clarification specifies that most beneficiaries must take annual RMDs throughout the ten years with the account fully depleted by the end of the tenth year.
This regulation specifically applies to cases where the original account holder had already started taking RMDs before they passed away. However, the regulations do provide some flexibility regarding annual distributions:
If the original account holder passed away before reaching their RMD age, beneficiaries have more leeway in timing their withdrawals within the ten-year window. But the account must still be depleted by the end of the ten years.
It is also important to note that the requirements can vary for certain beneficiaries. For example, the following “eligible designated beneficiaries” are generally exempt from the ten-year rule:
- Surviving spouses
- Minor children (under age 21)
- Disabled or chronically ill individuals
- Beneficiaries not more than ten years younger than the deceased
Eligible beneficiaries may wait longer to start withdrawals, but there is potential to save on taxes by taking larger withdrawals sooner. Depending on the specific tax situation, if income and/or tax rates are lower in some years, it can make sense to pull forward distributions from traditional IRA accounts in those years. Current tax law is set to increase tax rates in 2026, presenting a possible opportunity to pay less effective tax on distributions by withdrawing some distributions in 2024 and 2025.
For more information, please visit https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-beneficiary
The information has been obtained from sources we believe to be reliable; however, no guarantee is made or implied with respect to its accuracy, timeliness, or completeness.