Update to inherited IRA rules

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Only a few short weeks ago I wrote a blog detailing proposed regulations passed by the IRS that seemingly contradicted other guidance they had put out. A major concern at this time was that beneficiaries of inherited IRAs had inadvertently missed taking out a required minimum distribution (“RMD”) for 2021. Now there’s been an update to inherited IRA rules.

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When the SECURE Act first passed, it was believed that inherited IRAs just needed to be fully distributed at the end of a 10-year period, regardless of when the distributions occurred. The proposed regulations issued by the IRS suggested that the beneficiaries are intended to take RMDs throughout the 10-year period, with the remaining balance also required to be distributed by the end of the 10th year. This caused quite the commotion, and thankfully the IRS has issued relief from RMDs for the two year period between the passing of the SECURE Act and the issuance of the proposed regulations.

Notice 2022-53 issued by the IRS this month clarifies that the regulations that apply to RMDs will apply no earlier than the 2023 distribution calendar year. Plans that failed to make a specified RMD in years 2021 and 2022 will NOT be treated as having failed to satisfy the distribution requirements. This is huge because the excise tax on a missed RMD is 50% of the value of that missed RMD. If any taxpayer has been proactive and already paid that excise tax for a missed 2021 RMD based on the proposed regulations, they can request a refund.

As always, tax law is complex and constantly changing. Please contact your Henry+Horne advisor if you have any questions.

Haley M Braun, CPA

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