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Retirement Planning > Spending in Retirement

Ed Slott: More 'Insanity' Lurks in IRS Secure Act RMD Regs

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What You Need to Know

  • The IRS plan includes some unexpected rules for those 90 and older.
  • The rules force some beneficiaries to watch two sets of RMD factors as they age into their 90s, he says.

The Internal Revenue Service’s recently released proposed regulations on how to handle required minimum distributions under the Setting Every Community Up for Retirement Enhancement (Secure) Act of 2019 include some unexpected rules for those 90 and older, says IRA and tax planning expert Ed Slott of Ed Slott & Co.

“There is an added RMD calculation based on monitoring two sets of different RMD rules that mainly affect 90-plus-year-old beneficiaries,” Slott told ThinkAdvisor in a recent email. “Why? To see how sharp their analytical skills are in their 90s?”

Last week, Slott highlighted other ways that the proposed regulations create an RMD nightmare in an interview with ThinkAdvisor.

Plus, “in what may be the craziest section” of the proposed regs, Slott continued, “there is a situation where an eligible designated beneficiary (EDB) can use the life expectancy of another individual to calculate RMDs, but at the same time would have to monitor his own life expectancy to determine when the inherited account would need to be emptied.”

On top of that, “this is where these RMD rules go off the rails,” Slott said. The plan includes “a special rule that was to the inheritor’s benefit if that beneficiary was older than the IRA owner they inherited from. If death was after the RBD, the beneficiary could use the IRA owner’s lifetime to compute stretch IRAs, resulting in lower annual beneficiary RMDs.”

Older beneficiaries “will likely be EDBs because they qualify as a beneficiary who is not more than 10 years younger than the deceased IRA owner — because they are older. They can use the longer life expectancy based on the younger IRA owner’s age,” he said.

“This was easy enough before, but now when this beneficiary is likely in their 90s or older, they must empty the inherited IRA when the deceased IRA owner’s life expectancy would have expired,” Slott added. “Yes, this older beneficiary must now monitor two sets of RMD factors well into their 90s!”

This new rule, he points out, “will be incredibly complicated for custodians, advisors and seniors to administer. It is difficult to understand what abuse the IRS was looking to prevent here. Can you imagine explaining this to someone in their 90s?”