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IRS Finalizes Inherited IRA RMD Rules, Delays Effective Date Again by Joanie B. Stein, CPA

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Posted on August 13, 2024 by Joanie Stein

In July 2024, the IRS issued final regulations regarding the SECURE Act’s elimination of stretch IRAs for certain non-spouse beneficiaries. The announcement gives taxpayers and their advisors much-needed clarification on the law’s requirement that beneficiaries of inherited IRAs draw down those accounts and pay the related taxes within 10 years of an original owner’s death. Yet, thanks to an IRS notice earlier this year, affected beneficiaries can delay taking their first required minimum distributions from inherited retirement accounts beginning in 2025.

Before 2020, non-spouse beneficiaries who inherited a decedent’s IRA could treat those retirement accounts as their own and wait to take required minimum distributions (RMDs) until they reached full retirement age. This changed under the SECURE Act, which requires non-spouse beneficiaries of a decedent’s IRA to take annual RMDs from those accounts and treat them as taxable income to themselves in years one through nine after the original account holder’s death. By the end of the 10th year, beneficiaries must remove any remaining balance and pay the related tax liabilities.

Depending on the value of the inherited IRA, beneficiaries may find themselves in an unenviable position, subject to income and capital gains tax on their annual RMDs and boosted into the next income tax bracket subject to higher rates. This potential issue has been exacerbated by a series of delays to the inherited IRA RMD start date, which was supposed to begin in 2020. However, with the IRS’s most recent announcement, non-spouse beneficiaries who inherited a decedent’s IRA in 2020 or later can wait until 2025 to take their first RMD. Consequently, beneficiaries who took advantage of this five-year extension likely face the prospect of higher withdrawals and potentially higher tax liabilities in the remaining five years.

About the Author: Joanie B. Stein, CPA, is an associate director of Tax Services with Berkowitz Pollack Brant Advisors + CPAs, where she works with individuals and closely held businesses to implement sound strategies intended to preserve wealth and improve tax efficiency. She can be reached at the CPA firm’s Miami office at (305) 379-7000 or at info@bpbcpa.com.