It’s a Mess!
The IRS announced on Friday last week, that, among other things, it would continue to delay enforcing new RMD rules related to post-2019 inherited retirement accounts. We’ve waited for this ruling for some time now. We’re also receiving more questions lately about RMDs for this year.
Here’s the latest from the recent ruling and an overview of RMD requirements.
This Notice was supposed to correct the confusion that was created from previous guidance (which had also waived the RMD for 2020 and 2021).
We can rest easy knowing that those of you who inherited IRAs after 2019 are not required to take RMDs for 2023. On the other hand, this recent guidance does not put an end to the confusion regarding the rules for RMDs and non-spousal IRA beneficiaries who inherited the IRA after 2019. More to come at a later date.
They say final regulations for these RMDs will be available for calendar years beginning no earlier than 2024. We will still have to wait until 2024 for longer-term answers, while everyone is still subject to the 10-year rule.
The 10-year rule requires the taxpayer (other than the spouse and a few other exceptions) to distribute ALL funds from the IRA within 10 years. For some, it may save taxes to begin the distributions now and not wait for further IRS guidance.
Those who inherited IRA accounts before 2020 are still under the old rules, which means you are normally permitted to receive distributions over your expected lifetime.
For many, many years RMDs began at age 70 1/2. The SECURE Act of 2019 increased the age to 72 for distributions after 2019 (2020 and after).
Next, the CARES Act of 2020 waived RMDs for only tax year 2020, which delayed another year.
Then, SECURE 2.0 (signed late 2022) changed the ages again…
If you reach age 72 after December 31, 2022, and age 73 before January 1, 2033, your age is 73.
If you reach age 74 after December 31, 2022, your age is 75.
If you are age 72 after December 31, 2022, you are born in 1951 or later.
If you were born in 1951 you would have been preparing for your first RMD in 2023. With the change, if you were born in 1951 you won’t have to take your first RMD until 2024.
If you are born between and including 1951 and 1958, your age for your first RMD is 73.
To complicate it a bit more…
There’s an accidental technical error in SECURE 2.0. It is unclear if you are born in 1959 when you must take your first RMD. If you are age 74 after December 31, 2032, or born in 1959 or later there are two conflicting clauses in the bill about your first RMD. Congress will probably amend the bill by the time we get there. This doesn’t affect anyone until 2032.
If you were born in 1960 (and later) you will have to take your first RMD at 75.
And for those born before 1951, your age is still 72. No changes.
That’s a lot of rules! Actually, a good change for many.
However, with the possibility of rising taxes, it may not be smart to postpone these distributions. For many, it may be wise to take them early, even now, if you are older than 59 1/2.
