In April 2024 the IRS again granted taxpayers another year of relief from compliance with recently enacted laws concerning required minimum distributions (RMDs) from tax-deferred retirement accounts, including individual retirement accounts (IRAs) and 401(k)s.
The SECURE Act, signed into law in 2019 and amended in 2022 under SECURE Act 2.0, introduced a requirement that certain non-spouse beneficiaries of inherited IRAs draw down those accounts and pay the related taxes within 10 years of an original owner’s death. To clarify this 10-year payout rule, the IRS explained that non-spouse beneficiaries who inherit a decedent’s IRA after Jan. 1, 2020, must take annual RMDs from those accounts and treat them as taxable income to themselves in years one through nine after an original account holder’s death and remove any remaining balance from those accounts (and pay the related tax liabilities) by the end of year 10. Depending on the value of the IRA, named beneficiaries could risk falling into a higher tax bracket and becoming saddled with significantly high tax liabilities, for which they would pay higher tax rates on ordinary income and certain capital gains.
However, due to ongoing confusion and misinterpretation of these rules, the IRS delayed the start date for the third time. IRS beneficiaries who inherit an IRA from a non-spouse decedent may now wait until 2025 to take their first RMDs from those inherited accounts. While this is welcome news for many beneficiaries, it also means they will need to withdraw higher amounts during the remaining years of the 10-year withdrawal period, potentially putting them into an even higher tax bracket.
About the Author: Robert Mark Weiss, CFA, is a regional director and financial planner with Provenance Wealth Advisors, an Independent Registered Investment Advisor affiliated with Berkowitz Pollack Brant Advisors + CPAs, and a registered representative with PWA Securities, LLC. For more information, call (941) 308-1126 or email info@provweath.com.
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Robert Mark Weiss is a registered representative of and offers securities through PWA Securities, LLC, Member FINRA/SIPC.
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Posted on July 26, 2024