The IRS recently issued Notice 2024-35, which provides significant relief for certain beneficiaries of inherited IRAs. This notice waives the requirement for these beneficiaries to take required minimum distributions (RMDs) for 2024 if they are subject to the SECURE Act’s 10-year payout rule.
Inherited IRA Distribution Rules
Before the SECURE Act of 2019, beneficiaries of inherited IRAs could spread out their withdrawals over their lifetime, a strategy often referred to as the “stretch” IRA. This approach allowed beneficiaries to lower their annual tax liability. However, the SECURE Act significantly altered the rules surrounding RMDs.
Under the new regulations, non-eligible designated beneficiaries who are neither the spouse, a minor child, disabled, chronically ill, or certain trusts of the deceased must exhaust their inherited IRAs by the tenth year following the original account holder’s death. Additionally, if the original account holder had already commenced their RMDs, these beneficiaries are also required to continue taking these distributions throughout the 10-year period.
However, in the recent Notice, the IRS specified that non-eligible beneficiaries do not need to make these mandatory withdrawals in 2024. This effectively suspends the excise tax for failing to take RMDs during this period for those beneficiaries subject to the 10-year rule. The waiver applies if the original account holder died in 2020, 2021, 2022, or 2023 and had reached their required beginning date, typically April 1 of the year after the owner turns 73.
Implications for Tax Planning
This delay in mandatory distributions could provide tax planning opportunities for beneficiaries, potentially allowing them to manage income more effectively and reduce their overall tax liability for the year. In the meantime, beneficiaries are advised to consult with financial advisors to understand their responsibilities and potential penalties under the SECURE Act. The IRS’s extensions may provide some short-term relief, but beneficiaries will need to plan for the eventual expiration of these waivers. For more information or tailored guidance, please contact our Tax Specialists for assistance.