Ask the Expert: New rules for IRA beneficiaries
I inherited my father's IRA last year. I was told I didn't have to take withdrawals for 10 years. But I now hear that I must take required minimum distributions. What are the rules?
Good question. At the moment, it’s unclear.
In February, the Internal Revenue Service issued proposed regulations that contradict an earlier interpretation of a recent tax law. The initial interpretation was that beneficiaries could leave an inherited individual retirement account untouched until Dec. 31 of the 10th year following the year of the owner's death, by which date it must be emptied. The new proposed regulations say many beneficiaries must take RMDs in addition to emptying the inherited account by the 10-year deadline.
(Readers, take note: The proposed regulations described here apply to most non-spouse IRA beneficiaries of someone who died after 2019 — not to beneficiaries who inherited from someone who died earlier, or to surviving spouses, or beneficiaries who are disabled or close in age to the decedent. They’re subject to other rules.)
The new proposed rules say if you inherited an IRA from someone who wasn't yet taking RMDs, you have 10 years to empty the account, but no RMDs. However, if the decedent was subject to RMDs, you must take annual RMDs (based on your own life expectancy) starting the year after the decedent's death, and also empty the account at the end of 10 years.
If your father was taking RMDs before his death in 2021, this means you must take your first RMD by Dec. 31, 2022.
Tax experts are advising people in your situation to wait until close to year-end to take that RMD. By then, the IRS will have issued final regulations that may modify the proposed regulations.
The bottom line
The IRS has proposed regulations that contradict the initial interpretation of a recent law.
More information
bit.ly/KitcesSECUREactregulations
TO ASK THE EXPERT Send questions to act2@newsday.com. Include your name, address and phone numbers. Questions can be answered only in this column. Advice is offered as general guidance. Check with your own consultants for your specific needs.
